Overcoming the ‘thin file’ challenge

First-time buyers face no shortage of challenges when trying to get onto the housing ladder, from building a decent deposit to fighting off the competition for suitable properties. 
 
But one hurdle that can easily be overlooked is their credit history, or lack of. It’s not uncommon for potential buyers to find that what’s holding them back is not necessarily payment mishaps in their past, but simply a lack of a proven track record when it comes to the use of credit.  
 
And that thin credit file could end up significantly limiting their borrowing options. 

First-time buyers are most at risk of thin files

It perhaps isn’t a surprise that first-time buyers are the most liable to face difficulties as a result of a limited credit history. When we compiled our latest Near Prime Index, more than a quarter of the brokers we spoke with pinpointed this as a problem for their first-time buyer clients, instead of factors like missed payments, defaults or CCJs. 
 
They simply haven’t had enough exposure to credit to build up any sort of record, good or otherwise, and so they end up failing to meet lenders’ Prime criteria. 
 
It’s a good example of one of the frustrations brokers often talk about, when it comes to Near Prime. There is a concern that some lenders take a sweeping view of borrowers who fall outside of Prime criteria, as if they are all the same. But as brokers know only too well, all borrowers are unique, and their circumstances need to be better understood by lenders. A borrower with no credit record at all is not the same, and should not be handled in the same way, as someone with a consistent history of payment hiccups.  
 
Brokers treat their customers in a nuanced way; lenders should too.

The deposit challenge

The most obvious issue faced by any first-time buyer is the deposit. House prices for a long time have continued to rise, meaning aspiring homeowners have needed to build bigger deposits. 
 
That challenge is only exacerbated by the fact household outgoings continue to rise too. First-time buyers need to save more, yet have less disposable income to devote towards their deposit. 
 
This problem is made harder still for those without a comprehensive credit history, since there remains far less choice at high LTVs for Near Prime borrowers. When surveying brokers for our last Near Prime Index, more than a third noted the deposit size was the biggest barrier to submitting an application for their Near Prime first-time buyer clients. Meanwhile a similar number said higher LTVs were the number one feature they look for from a lender when working with Near Prime first-time buyers. 
 
Borrowers with a thin credit file are effectively falling between two stools at the moment. They don’t have the credit record to qualify for Prime mortgage products, and their choice is further limited if they need access to high LTV deals given how difficult it is to save a more substantial deposit without family help.  

Making the housing ladder accessible

Our housing market relies on first-time buyers being able to access it. As a result, Near Prime funding is a crucial tool, helping those borrowers with thin credit files as well as those with a history of payment problems to access the funding they need for that first purchase. 
 
The message from brokers is clear. Thin files are a challenge for a notable portion of their first-time buyer clients, and they need lenders to combine a flexible, understanding approach with higher LTV options. Get that combination right, and we can make a meaningful difference to the next generation of homebuyers.