First-time buyers and existing homeowners may see their mortgage applications rejected this year as inflation worsens the build-up of unsecured debt, new research shows.
A third of people looking to get on the property market could be held back by “adverse credit histories”, according to the specialist provider The Mortgage Lender.
Some 14 per cent of UK adults are planning to buy a home in 2022, but these would-be buyers have unsecured debts worth an average of £2,732, 34 per cent higher than the UK average of £2,035.
Meanwhile, as consumers face cost increases from their utilities, groceries and other bills, there is concern more may end up reliant on unsecured debt to get by.
A reduction in Government pandemic support measures has also added to this, the lender explained.
Borrowing on credit cards has jumped 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.
Peter Beaumont, chief executive officer of The Mortgage Lender, warned consumers should contend with these credit issues before they buy a home.
He said: “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.”
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The Mortgage Lender also found a number of people were involved in serious adverse credit events, which it said may cause the majority – if not all lenders to reject a mortgage application.
It revealed 15 per cent of those planning to buy this year had previously received a default notice, while 8 per cent have applied for a Debt Relief Order (DRO) or Individual Voluntary Agreement (IVA).
A further 6 per cent of those planning to buy a home this year have applied for a Debt Management Plan (DMP) and 8 per cent have been issued with a County Court Judgment (CCJ) over a credit related matter.
While those with small amounts of unsecured debt may be able to access a mortgage, financial pressures built over the coming months could shut people out of the market for years to come.
These problems are not confined to first-time buyers, Mr Beaumont warned, as existing homeowners are likely to see their bills skyrocket.
He added: “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 standard variable 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.”
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