Many Help to Buy hopefuls ill-prepared for scheme

Almost two fifths (39%) of 20 to 40-year-olds are planning to apply to the Government’s Help to Buy mortgage scheme in 2014, according to a report commissioned by Experian CreditExpert.

However, some of these Help to Buy hopefuls could well be ill-prepared, with just two fifths of Help to Buy hopefuls (40%) being registered to 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 your credit report is accurate as possible.

Furthermore, the insight report 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. In fact, more than a quarter (26%) has saved less than the £5,000 required to partake in the Help to Buy scheme.

The Experian Help to Buy Hopefuls Insight Report, based on interviews with more than 2,000 20 to 40-year-olds, also reveals that Help to Buy hopefuls account for seven in 10 potential mortgage applications among the under-40s. A quarter of Help to Buy Hopefuls will apply in the second half of 2014 with 7% looking to move in the next three months.

Who are the Help to Buy hopefuls?

  • More men than women (43% to 34% respectively) are planning on applying for the scheme
  • The majority are in their 20s, with 33% aged 20-24 years old and 31% aged 25-30
  • Their household income varies widely. Although three in 10 (29%) earn less than £20k a year, half earn more than £30k. Nearly a quarter (23%) enjoy a household income of twice the national average at £50,000 or more

Where do Help to Buy hopefuls live?

  • People in the North East are most likely to be considering Help to Buy (50% of 20-40-year-olds)
  • This is followed closely by London (49%) and the West Midlands (46%). People in the South East (33%) and the South West (30%) are least likely.
  • More urban areas account for the largest proportion of Help to Buy Hopefuls, with the overcrowded hotspots of London (17% of Help to Buy hopefuls) and the South East (12%) the two biggest regions. They are closely followed by the West Midlands and North West (11%), while Wales (5%) and the North East (6%) have the fewest

Credit Concerns:

  • 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. But two-thirds (64%) have checked their credit report within the last year and a third (31%) in the last three months
  • One in seven of those looking to buy (14%) admit they have been managing their current credit accounts poorly in recent years
  • A further 14% think that having a good credit history is less important for Help to Buy than for conventional mortgages – when the opposite is likely to be true

Financial Matters:

  • The average deposit saved by Help to Buy hopefuls is £9,590, but 7% have yet to save anything
  • The majority (55%) have a deposit of less than £10k, with 19% 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

Peter Turner, Managing Director, Experian Consumer Services, UK & Ireland, commented:

“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.”

Here are some simple tips from Experian CreditExpert to help you prepare for a mortgage application in 2014:

1. Understand what is on your credit report before you meet any lenders. Is everything accurate and up-to-date? Pay attention to addresses, whether you’re listed as being on the Electoral Roll at your current address, financial associations which are no longer relevant and or outstanding accounts that should be marked as settled.

2. Does your Experian Credit Score need work? The Experian Credit Score is a guide, to help you understand your credit report, how past credit management can impact on future credit applications and for you to monitor your progress as you get your finances in order before you apply.

3. Shopping around? Decide what kind of mortgage you want, how much you can afford and compare products you are likely to qualify for. Experian CreditExpert matches your credit profile to the best deals you are most likely to be accepted for. Only when you’ve found the best deal should you ask for an agreement in principle.

4. Do you want a quote or an agreement in principle? A quote will tell you what mortgage rate you’re likely to get and what your repayments would be but do not require a full credit check. An agreement in principal will tell you if a lender will offer you a certain size of mortgage and is treated as an application and will leave a footprint on your credit file. Too many footprints could cause future lenders to be concerned you have been rejected for previous applications

5. Remember your credit report is only one part of your application. Lenders also use the information provided on your application form and that they already hold on you (if you’re applying through your bank, for example).

Download the full Help to Buy Hopefuls – Experian Insight Report here.

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