Majority of first-time buyers fear debt will block their mortgage

Almost three out of five first-time buyers believe that having existing debt will prevent them from getting a mortgage, it has been revealed.

The findings by Lloyds suggested that a total of 58% of the 1,000 surveyed reckoned that any borrowing would block approval.

At the same time, more than a third – at 37% – believe that a 20% deposit is essential.

Borrowing misconceptions

Lloyds insisted that these misconceptions about mortgage eligibility may be creating unnecessary hurdles, with some buyers ruling themselves out before they’ve even explored their options.

However, agents have pushed back, saying that affordability, rather than misunderstanding, is what is keeping first-time buyers out of the market.

Helping buyers understand their options is important, but it cannot resolve the pressures facing first-time buyers, including house prices, deposit requirements and the cost of living.”

Ian Harris, President of NAEA Propertymark, explains: “The reality is that buying a first home is already challenging, with affordability, deposits and access to suitable housing all significant barriers.

“We must also recognise the wider affordability challenge. Helping buyers understand their options is important, but it cannot on its own resolve the fundamental pressures facing first-time buyers, including house prices, deposit requirements and the cost of living.

“The message should be simple: Don’t rule yourself out before you’ve explored your options, but make sure you understand the full costs and commitments involved in becoming a homeowner.

Homeownership aspirations

The Lloyds research went on to suggest that 40% of first-time buyers also believe that homeownership is out of reach if they have an overdraft.

Meanwhile, 38% said the same of receiving benefits, and 31% pointed to having changed jobs recently. Three out of 10 believe a perfect credit score is needed, while 24% think being self-employed rules them out.

Amanda Bryden, Head of Mortgages at Lloyds, says :”Our research shows many aspiring first-time buyers believe they need to be debt free, have a perfect credit record or save a 20% deposit before they can even think about getting a mortgage.

“In reality, mortgage decisions are based on a much broader picture of your finances and circumstances.”