14% of UK adults are planning to buy a home in the next 12 months, however a third (34%) of them could see their mortgage application rejected due to ‘adverse credit histories’, according to new research by The Mortgage Lender (TML).

The past two years have placed significant financial stress on individuals, particularly those with complex incomes, such as the self-employed. The study revealed that those hoping to buy a home this year have unsecured debts worth an average of £2,732, 34% higher than the UK average of £2,035.

With the cost of living rising in the UK, and people facing significant cost increases from their utilities, groceries, and mortgages, there is a real concern that more individuals could be reliant on unsecured debt to get by month to month.

A reduction in government pandemic support measures has already prompted consumer borrowing on credit cards to jump to its highest level in more than a year, pushing all forms of household unsecured credit to £1.2bn, according to the latest Bank of England data*.

The Mortgage Lender’s research also found a number of people were involved in serious ‘adverse credit’ events. These situations could cause the majority, if not all, lenders to reject a mortgage application. Indeed, 15% of those planning to buy this year had previously received a default notice. 8% have previously applied for a Debt Relief Order (DRO) or Individual Voluntary Agreement (IVA). A further 6% of those planning to buy a home this year have previously applied for a Debt Management Plan (DMP) and 8% have been issued with a County Court Judgement (CCJ) over a credit related matter.

The Mortgage Lender warns that while those with small amounts of unsecured debt are likely to still be able to access a mortgage, particularly from specialist lenders, there is a risk that as financial pressures build over the next year, we could see a rise in the number of people with serious marks on their credit score. This could not only shut them out of the mortgage market now, but for many years into the future too.

Peter Beaumont, TML CEO, commented: “The past few years have been challenging for everyone and these findings illustrate just how many people planning to buy a home this year have also had to contend with credit issues.

“The reality is a number of those who are expecting to buy a home this year are likely to see their mortgage rejected out of hand. With more ‘buy now pay later’ products on the market and the rising costs of everyday items, there is a real risk that people will unknowingly walk into a bad credit score. It’s vital that people understand the impact that even a small amount of debt could have on a lending decision in order to make an informed choice before taking on any additional debt.

This is not only a concern for those first-time buyers trying to get onto the property ladder, but also for homeowners looking to remortgage in the next few years. The risk for this group is that lenders no longer deem them a viable option, and they tick up onto the SVR rate. With the Bank of England expected to continue to raise the base rate over the next year, this could mean they end up paying substantially more in their repayments than expected.

In real life, things go wrong – and it seems unfair to punish someone for a short-term credit blip here or there. Luckily, for those people who would otherwise be left with no option, there are specialist lenders out there who have more flexible criteria and believe in real-life lending.”

* https://www.bankofengland.co.uk/statistics/tables

Mortgage rejection in 2022 could affect one in three