Homebuyers struggle to get loans

Equifax surveyed its consumer customers about mortgage applications in September 2008 and found that 23% had had difficulty obtaining a good deal on first application. When Equifax consumer customers were asked the same question again this October, the percentage of homebuyers having difficulty getting a good deal had jumped to 45%.

“The impact of the current financial climate seems to be continuing to hit those looking for a good mortgage deal,” confirmed Neil Munroe, external affairs director, Equifax. “This probably isn’t a surprise to many in the home buying market, but it does indicate that lenders are still being very selective about who they extend the best deals to.

“A quarter of respondents to our survey this year thought that they probably couldn’t get a good deal first time round, because of past defaults on their credit file – this is a pretty similar percentage to those we surveyed last year. But what has changed is that 17% of respondents put their difficulties in getting a mortgage down to not having a large enough deposit, compared to just 9% saying the same in 2008. This shows just how important it now is to have a reasonable deposit before making an application.”

While just 19% of respondents made two to three applications last year before being successful, this rose to 30% in 2009, highlighting the difficulties consumers continue to face in meeting lenders more stringent credit acceptance criteria.

However, there is one feature of the home buying market that seems to have had a good consequence in the last year. The impact of reduced interest rates means consumers appear to be more upbeat about the cost of living this year. 61% think their cost of living has increased by up to £250 per month this year, compared to a significant 78% in 2008. And only 25% think they might get into financial difficulty this year, a drop of 11% compared to last year, suggesting that consumers have taken steps to protect themselves from uncertainty.

More available funds as a result of lower interest rates may also have had an impact on individuals reducing the size of their short term debt. In 2008, 36% of respondents had short term debts – credit and store cards, etc – of over £10,000. This has reduced to a quarter of respondents this year.

But the fear of job losses still loom large, with 1 in 3 respondents saying that they could only manage for up to two months before getting into financial difficulty, if they lost their job. And 18% are concerned about being able to pay their fuel bills this winter.

“Our survey clearly shows that borrowers are finding it difficult to secure good mortgage deals, although they appear to be reaping the benefits of lower interest rates to manage their finances better generally” concluded Neil Munroe. “Whilst lenders remain cautious, it’s important that homebuyers or those coming to the end of their current mortgage deals do as much as possible to keep their credit status as positive as possible.”