How bad credit reports affect first time buyers
14th November 2011
Credit reports are designed to help lenders to decide whether a consumer is an ideal borrower. It records a person’s financial history including all debts that they have totalled and how they make their repayments. If the person misses a repayment then it gets marked on the report for all to see. There are many reasons why a person may have a less than perfect report. The problem is that a bad report will have a negative effect for first time buyers.“
Credit Reports and First Time Buyers
It isn’t only bad credit reports that can affect first time buyers. Often first time buyers are quite young. They haven’t yet had a chance to build up a credit history and that can be a problem for lenders. After all, they use your credit report to determine whether you are a reliable borrower. If you haven’t yet borrowed any money then how can they tell if you will pay them back when you say that you will? This leaves young first time buyers with a problem. They need credit to build up a credit report, but they find it difficult getting it because they haven’t had any. It is certainly a tricky situation to be in!
There are currently housing shortages throughout the UK and experts are claiming it is because first time buyers are struggling. Many lenders are claiming that there isn’t a problem because many people are starting to save for deposits to put down on their first home. However, experts argue that a lack of buyers means that builders will not construct any new homes. There would be no point if there isn’t enough interest in the housing market. As there is a housing shortage, that leaves quite a big problem.
These days’ first time buyers can find mortgage deals which offer them up to 90% of the home value. Interest rates are currently at their lowest for a number of years. Some statistics taken from Scotland have shown that there has been a decrease of a third of a percentage point in interest on fixed rate mortgages.
It is the younger buyers that are experiencing the most problems. Many are finding that they are declined by lenders because of a few blemishes on their reports. It is now being speculated whether lenders are using small issues as a reason not to lend to people they assume will be a higher risk. They should be looking into each individual case to see whether the potential buyers could repay the mortgage.
There have been changes in the market that have also meant that lenders are now looking into late repayments to make a decision. So it isn’t just missed payments that buyers have to be wary of, it’s one that have been made later than agreed too. When talking about the problem, the chief executive of Homes for Scotland claims:
“The demand for new homes is there, but what’s changed dramatically is access to mortgage lending, but it has gone completely the other way.”