Thousands of potential homeowners wrongly think they can’t get a mortgage

Published by Stephen Little on 02 October 2018.
Last updated on 02 October 2018

Mortgage

Thousands of potential homeowners aren’t applying for a mortgage because they mistakenly believe they would be turned down, new research suggests.

Seven out of ten (70%) people think a low credit score, zero-hour contract, payday loan, new job or even parental leave would prevent them getting a mortgage, according to mortgage advice website Online Mortgage Advisor.

Nearly half (47%) believe a low credit score could stop someone getting a mortgage, one in three (33%) think a zero-hour contract would be a barrier and 15% think a payday loan would stop an application from being accepted.

While it is not necessarily the case that these would be automatic barriers to getting a mortgage, it can make it harder for some and those who are accepted may have to pay a higher rate of interest or borrow a smaller sum than otherwise. 

The survey - which questioned over 2,000 people - found the same percentage believe starting a new job or being on a probation period would prevent an offer being made and 6% think parental leave could cause problems.

Pete Mugleston, managing director at Online Mortgage Advisor, says a huge number of consumers are in the dark about what would prevent them from borrowing.

He says: “It’s sad to think so many people would avoid applying for a mortgage because they think they’d automatically be turned down as a result of a reason that is actually acceptable for many lenders.

“We may be a long way away from the pre-credit crunch days of no income, no job or asset mortgages and free-for-all credit, but lenders do recognise that people’s circumstances have changed and as such, many have adjusted their criteria to reflect this."

He adds: “Lenders will use the information found within a credit report to assess a customer’s eligibility, but they won’t make a decision purely based on a credit score.”

Nick Morrey, product technical manager at mortgage broker John Charcol, says: “A low credit score is an issue for some people looking to take out a mortgage. If people don't keep up with their mobile payments, have a contract for utilities as they pay cash or they are not on the electoral roll, they are not going to score as highly on their credit check. This will affect the amount you they borrow, so someone with a 10% deposit and a poor credit score could be turned down by a lender.

“Lenders don’t just go on your credit history with a credit reference agency like Experian. They are also concerned about stability such as how long you have lived at your address or been with your bank.

He adds: “The idea that that it is difficult for people to get a mortgage with a bad credit history is genuinely not true and even if they do there are plenty of lenders out there such as Kensington, Precise and Magellan who will lend. Borrowers will be accepted for a smaller mortgage just not the amount they are looking for.”

Getting a mortgage with bad credit history

If you have got a bad credit rating because of past problems, it can be difficult to find a lender willing to offer you a mortgage.

If you have got a poor credit history and are worried that you won’t be able to get a mortgage, all is not lost.

While having a poor credit score can make getting a mortgage more difficult, there are some lenders that can help.

If you have been turned down by a high street bank or building society you might want to try apply through a specialist lender.

Specialist lenders include names such as Precise Mortgages, Pepper Homeloans, or Cambridge Building Society.

However, you must remember that specialist lenders usually require a larger deposit and charge a higher than average interest rate. Also make sure that you are confident you will be able to keep up with payments. 

There are also a number of steps you can take to improving your credit score.

First of all, make sure you pay all bills on time as missing them can have a negative impact on your file.

If you are having trouble paying off debts, it could be a good idea contact your creditors to set up a payment plan.

Stability plays a huge role in determining your credit score. The longer you have had a credit card or have been in the same address the higher your credit score will be.

Being on the electoral roll will also show stability to a lender and give you a stronger score.

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