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Understanding Lender Risk on First-Time Buyer Mortgages

Understanding Lender Risk on First-Time Buyer Mortgages
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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin17 Dec 2021

Finding a great mortgage as a first time buyer can feel like an uphill struggle, with a larger proportion of applicants being turned down than a year ago.

Around 20% of first-time mortgage applicants are rejected, usually because of the lender risk associated with their loan.

Today, Revolution Brokers explains the highest risk factors, why they make it harder to secure a competitive mortgage, and what you can do to submit a lower-risk application to improve your mortgage approval prospects!

First-Time Buyer Lender Risks

It's worth taking some time to understand lender risk since it's a pivotal factor in your mortgage application.

In essence, anything that makes a mortgage provider think you're less likely to keep up with the repayments adds to the risk factor - so that could include things like:

  • Not having a permanent employment role.
  • Being a younger applicant.
  • Never having owned a property before.
  • Having very little credit history.

The primary reason that first-time buyer mortgages are turned down is poor credit - but, as with any loan, an experienced independent mortgage brokers can advise on ways to offset that risk and improve your credit rating.

Many first-time buyers also don't have any familiarity with the mortgage process, so they might start on the wrong foot.

For example, if you request a loan five times more than your annual income, you're already pretty unlikely to be approved unless you have additional security to offer.

The trick is to understand the risks, evaluate where you fall, and take steps to put together a compelling application that makes you a strong mortgage candidate.

Reasons for First-Time Buyer Mortgage Rejections

Let's take a minute to run through the most common reasons for a first-time buyer to be refused a mortgage:

  1. Poor credit history
  2. Insufficient deposit
  3. Not being on the electoral roll
  4. Administrative errors
  5. Being self-employed

As we can see, these are fairly simple issues and usually easy to solve with advice from a qualified broker such as the Revolution team.

Getting a First-Time Buyer Mortgage With Bad Credit

Credit is always a big deal because a first-time buyer is already a higher risk than another applicant because they have no history of managing a mortgage.

If you have poor credit or suspect your credit report is less than glowing, there are lots of ways to circumvent this potential obstacle:

  • Boost your credit score by cancelling any unused credit card accounts.
  • Pay all your bills on time to build up responsible payment history.
  • Reduce any debts where possible and stay below 50% of your credit card limit.
  • Download a copy of your credit report and address any errors or queries.
  • Register on the electoral roll (both yourself and a partner if you're applying for a joint mortgage).

Get in touch with Revolution on 0330 304 3040 or via email at [email protected] for more information - we specialise in supporting bad credit applicants and can recommend niche lenders who might be perfectly suited to your circumstances.

Deposit Requirements on First-Time Buyer Mortgages

It's often very tough to raise a large deposit while paying rent, but a low deposit is another typical reason a lender rejects an applicant.

There are also lots of options here:

  • First-time buyer schemes, such as the government guarantee scheme, offer mortgages at up to 95% LTV, so you need to save a much smaller 5% deposit than standard.
  • Use a guarantor, usually a parent, to back up your mortgage and show the lender that you're not a high-risk applicant.
  • Consider buying a smaller property, to begin with, so your available deposit makes up a larger percentage of the total property value.

It's not always possible to save a larger deposit. Still, a broker can provide several options, including specialist lenders, who have a more flexible approach than a mainstream bank.

Avoiding Admin Errors on a buy to let first time buyer Mortgage Application

Making a mistake on an application - even something as simple as misspelling a name or missing an address - can result in mortgage refusal.

Most mortgage lenders will run each application through an initial assessment before offering an agreement in principle or turning down the application.

The next step is a more thorough underwriter's assessment, where the lender will look at risk, credit history and affordability in more detail, but you need to get past step one to be considered.

Therefore your application must be complete, with all the supporting information required and copies of any relevant documents necessary to confirm the details provided.

Finding a First-Time Buyer Mortgage

The factors we've run through here are just some of the many risk assessments a lender will look at before approving a first-time buyer mortgage.

To ensure you have the best chance of approval, we always recommend working with an independent broker. Revolution can advise on suitable lenders and ensure your application will pass the eligibility process before submitting it to a single lender.

Please get in touch on 0330 304 3040 or email us at [email protected] for further information about first-time buyer mortgages or finding a competitive deal.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.