Ask an Expert: First-Time Buyer with no Credit History

“I am a first-time buyer and have never taken out any credit, only ever car insurance. I am looking for a mortgage with a 10% deposit. How long do I need to make payments if I take out credit to show I’m able to pay it back, and is this needed so I can apply for a mortgage?”

This is certainly not the first time we have been asked this question and we’re glad it has come up again.

Why is a credit history important?

The role a credit history has to play in the mortgage application is often one that surprises first-time buyers. Many of our customers assume that no credit history is a good thing as it shows you only buy goods and services you can pay for upfront. It also demonstrates that you are able to live within your means and understand that credit is not something you should access unless you really need to.

But while those are all important financial lessons, it’s not necessarily what a mortgage provider wants to see. When considering a mortgage application, the lender will look at your credit record to get an idea of your financial history. If there’s very little on your credit record, i.e. no regular credit card payments, no history of a mortgage, utility bill or rental payments, then there’s very little to go on. Without a proven record of making payments on time, some high street lenders will feel they are unable to assess the level of risk you pose and will refuse the application. And for you, that’s no good at all.

An increasingly common problem

This problem is one we’re encountering more and more. With house prices and even rents beyond the reach of many younger people, an increasing number are choosing to live with their parents while they save the deposit they need.

This is an excellent way to save, but the trouble is that during that time, as the utility bills, rental payments and council tax will not be in your name, you will not be building up your credit score. When it comes to moving out, that can make it difficult to find a good mortgage deal.

The solution

• Access your credit report – The first thing you need to do is access your credit report. You need to see what information the credit agencies hold about you and make sure all the details are correct. There’s also a good chance they’ll hold more information on you than you might think. All credit reference agencies have a statutory obligation to provide you with a copy of your credit report for £2, although at Noodle and ClearScore you can access it for free.
• Start building a good credit history – Although not advocating you start to run up unmanageable debt, it could help to have a payment history on your credit file and in turn start building your credit score. Paying for your car insurance in monthly instalments could help to build your credit score as long as you make all the payments on time. Even paying your phone bill every month will start to improve your credit score. You could also start to make a few payments on credit card. This won’t cost you more than a debit card as long as you pay off the balance at the end of the month but it’s surprising how much impact this simple change can make.
• Consider your LTV – For a first-time buyer, we know that saving a 10 percent deposit is difficult enough, but if you could save a little more that could improve your options. That’s not to say you won’t find a competitive deal with a 10 percent deposit, but if you could raise it to 15 percent you’d certainly have more choice.
• Ask the experts – If you want to find the best deal then don’t just contact the bank or building society your current or savings account is with. Shop around. Now is a great time to be looking for a mortgage, even as a first-time buyer. So, speak to a broker who has experience of working with low/no credit score customers – such as one of our qualified team at Just Mortgage Brokers – to see what we can do for you first.

Talk to Just Mortgage Brokers

We work with prospective homebuyers facing a wide range of situations and are always on hand to provide the advice and assistance you need. Any questions you have, just get in touch with our team.