Help to buy hopefuls ill-prepared, report warns
Published by Max Salsbury for 24dash.com in Housing and also in Finance
mortgageImage: via Shutterstock
Many people hoping to take advantage of the government's help to buy policy are ill-prepared for the scheme, a report has warned.
According to Experian CreditExpert's study, 39% of 20 to 40-year-olds are planning to use the mortgage scheme in 2014, but just two fifths of these hopefuls are registered on the electoral roll at their current address, something that can be a key factor not only in passing the initial identity verification checks but also in ensuring credit reports are as accurate as possible.
Experian's research also found that a quarter of would-be help to buy applicants have never reviewed their own credit report and 7% have not saved for a deposit. And 26% have saved less than the £5,000 required to partake in the scheme.
The report reveals that:
- More men than women (43% to 34%) are planning on applying for the scheme.
- The majority are in their 20s, with 33% aged 20-24 and 31% aged 25-30.
- People in the North East are most likely to be considering help to buy (50% of people aged 20-40), followed by London (49%) and the West Midlands (46%). People in the South East (33%) and the South West (30%) are least likely.
- The average deposit saved is £9,590, but 7% have yet to save anything.
- 55% have a deposit of less than £10k, while 19% have less than £5k. Three in 10 (30%) have £10-20k set aside while one in 10 (11%) have more than £20k.
- Men are more likely to have larger deposits than women (47% have more than £10k compared to 33% of women).
- Londoners have the largest deposits, with 53% having £10k or more and 19% more than £20k. Just 1% have no deposit, compared to 14% of those in the East Midlands
- Help to buy hopefuls currently owe an average of £4,600 in other borrowing.
Experian warns that 25% of help to buy hopefuls have never checked their credit report to better understand how their history of managing credit could impact their application for the scheme, while one in seven of those looking to buy admit they have been managing their current credit accounts poorly in recent years.
And 14% think that having a good credit history is less important for help to buy than for conventional mortgages, with Experian warning that the opposite is likely to be true.
Experian's Peter Turner said: “Help to buy has brought homeownership to within touching distance for thousands of younger buyers earlier than they may have dreamt possible. But it’s important to remember that the deposit is only part of the equation and consideration must be given to how much you can afford to borrow – and crucially repay in the years to come.
“A larger loan means lenders taking close look at your ability to repay and a large factor in that will be based on your credit history. Anyone looking to make the most of help to buy would be well advised to check their credit report to better understand their credit history, and ask for help if needed to ensure your credit report paints the best possible picture – before you make your application.
“Hopefuls should also note that in the short term, future applications for credit could be negatively impacted as lenders may want to see how well you are repaying your current credit commitments before offering you any more credit. Take this into account in your financial planning for the year ahead and, where possible, give the mortgage time to mature before making any future applications.”