Consumer Services The Help to Buy Hopefuls Experian Insight Report January 2014 1
Introduction 2014 is a year when the Government s home-buying initiative, Help to Buy, will be on the minds of many would-be homeowners the Help to Buy Hopefuls. And Experian CreditExpert research has revealed there are more of them than previously estimated: two-fifths of people aged 20-40 plan to apply to the scheme this year. This Experian Insight report paints a clear picture of who the Help to Buy Hopefuls are and how prepared they are for their property purchase. When it comes to the deposits they have saved, existing debt and knowledge of their credit history, it reveals that many would benefit from a helping hand in order to turn their dream into reality. 2
Contents Introduction 2 Contents 3 Who are the Help to Buy Hopefuls? 4 When do they intend to apply? 5 Financial Matters 6 Deposits Existing credit Future borrowing Financial awareness 7 Prepared to Buy? 8 Helping the Help to Buy Hopefuls 9 Appendix: Regional Breakdowns 11 North East North West Yorkshire and the Humber East Midlands West Midlands East of England London South East South West Wales Scotland Contact 14 3
Who are the Help to Buy Hopefuls? The Help to Buy Hopefuls come from a general cross section of society, with more men than women (43% to 34% respectively). The UK s more urban areas are home to the largest proportion, with London (17%) and the South East (12%) the two biggest regions and Wales (5%) and the North East (6%) the smallest. Scotland North East South West East Midlands East of England Wales Yorkshire and the Humber London West Midlands South East North West East Midlands 7.0% East of England 8.4% London 16.7% North East 5.6% North West 11.5% Scotland 8% South East 11.6% South West 6.5% Wales 4.7% West Midlands 11.2% Yorkshire and the Humber 8.9% Their household income varies but is generally relatively high. Half earn more than The majority are in 30,000 a year and a quarter (23%) enjoy a household income of twice the national their 20s. average at 50,000 or more. Those considering the The demographics most interested in the Help to Buy scheme are: Help to Buy scheme: Young, well-educated city-living professionals (18%). Many are based in London or cities with major universities, such as Cardiff and Edinburgh. As they are Gender: Male = 43% predominantly single and childless, they have a high demand for small, high Female = 34% quality flats, which means they could view Help to Buy as an opportunity to purchase by themselves. As many have rented properties up to now, this could Age: explain why many are not registered on their Electoral Roll. 20-24 = 33.2% 25-30 = 31.2% Younger workers with lover household income, currently living in urban terraces 31-35 = 20.3% in former industrial towns (14%). Often with children, they currently rent small, 36-40 = 15.3% terraced properties near the centre of industrial towns. They are clustered in the North West, East Midlands and Northern Ireland. Looking to move somewhere better, many have struggled to save for a deposit, which makes Help to Buy a very attractive proposition. Slightly older families on middle incomes in suburban semis (10% ). Based in the North West, London and the South East, they are financially savvy but have Income: under 10,000 = 7.6% 10,000-19,999 = 21.3% 20,000-29,999 = 21.6% 30,000-39,999 = 17.5% 40,000-49,999 = 9.5% 50,000 or more = 22.5% little in the way of savings. They could therefore see Help to Buy as a way to get another rung up the housing ladder. As many are good customers for lenders they are also likely to enjoy the most competitive rates. Younger couples on moderate salaries and with moderate savings, living in affordable houses in post-industrial towns (10%). Scattered across south Wales, the North East, East Midlands and south Yorkshire, many have young children and will be outgrowing their current homes. Being careful with money, they are well-placed to take advantage of Help to Buy. 4
When do they intend to apply? As more and more financial services providers sign-up to the scheme, it seems many Help to Buy Hopefuls are holding 25% back to see what the market will offer: although two in five (39%) members of the public intend to use the scheme in the next year, only 7% plan to do so before April and another 7% before July. Yet those waiting until April may not be aware of the Mortgage Market Review coming into force that month, which will include tougher lending criteria and affordability tests. 7% 7% A sizeable 43% of the total population are planning to stay put in their current properties over the next year, while one in 10 (9%) want to buy a new home but are considering a conventional mortgage or other forms of credit. In the next three months In the next six months In the next year 5
Financial Matters Deposits The average deposit saved by Help to Buy Hopefuls is 9,590. However, 7% have yet to save anything rising to 9% among those looking to buy in the second half of 2014, which could suggest they have underestimated just how much they will need to put down for a property. In total, more than a quarter (26%) have saved less than the 5,000 required to partake in the Help to Buy scheme. Although the majority (55%) have a deposit of less than 10,000, one in 10 (11%) have impressively saved more than 20,000. Unsurprisingly, older Help to Buy Hopefuls have the largest deposits, with a fifth of 36-40-yearolds (20%) boasting 20,000 or more, something only 5% of 20-24-yearolds can say. Deposits saved - % Zero: 7% Less than 5,000 19% 5,001 to 7,500 15% 7,501 to 10,000 14% 10,001 to 12,500 12% 12,501 to 15,000 7% 15,001 to 17,500 4% 17,501 to 20,000 7% More than 20,000 11% Regionally, 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. Existing credit The average owed on credit by Help to Buy Hopefuls is approximately 4,600, which increases steadily with age, 35-40-year-olds owing 5,240 compared to 20-24-year-olds 4,390. Regionally, the East Midlands has the highest credit owed ( 5,800), with the South East the lowest ( 3,940). One in 20 people (5%) claim to have more than 15,000 worth of credit, the proportion remaining constant across the various age groups. Future borrowing The Help to Buy Hopefuls appetite for further borrowing may be affected by their plans to secure a mortgage: just a quarter (27%) of those considering the Help to Buy scheme are thinking of taking out further credit within the year following their application. Yes 27% No 51% Don t know 22% People aged 25-30 are more likely than average to consider further borrowing in the year ahead (32%), while those aged 36-40 are less likely (22%). This reflects the fact that younger buyers are less likely to have accumulated much in the way of furniture or the other trappings of a first home. 6
Financial awareness Awareness of the mortgage process and factors that affect it varies with age and income. A quarter of Help to Buy Hopefuls (25%) have never checked their credit report to better understand how their history of managing credit could impact their application for the scheme. However, two-thirds (64%) have checked their credit report within the last year, with a third (31%) in the last three months the most common frequency, suggesting many are in the habit of consulting their report fairly regularly. The younger the person, the higher their credit-checking frequency, presumably because they have greater reason to take out credit and are more aware of the advantages of monitoring their credit profile. And, curiously, middle income earners on 20-39,000 are least likely to have checked their credit report in the last three months, with just 26% having done so. Help to buy Hopefuls 25% not checked their credit score 64% checked in the last year 31% in the last month 7
Prepared to Buy? Apart from deposit and levels of borrowing, are the public prepared to buy a home in 2014 based on their knowledge of the mortgage application process? It appears more work needs to be done here on educating would-be homeowners. Although one in 10 people aged 20-40s (10%) agreed that the Help to Buy scheme means they can buy a property sooner than they thought, those actually looking to use the scheme this year are not yet fully prepared to do so: only two fifths (40%) are on the electoral role at their current address when not doing so could negatively affect their credit score and their ability to secure a mortgage. One in seven Help to Buy Hopefuls (14%) admit they have been managing their current credit accounts poorly in recent years, which could deter mortgage lenders, with nearly one in 10 (8%) having missed credit repayments in the last 12 months. Behind this could be that 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. Perhaps surprisingly, this misconception remains constant across the age ranges. However, it is heartening to see that a one on three (35%) have been carefully managing their credit profile with the aim of buying a property. 40% 35% 24% 14% 14% 8% I am on the electoral roll at my current address I have been carefully managing my credit profile with the aim of buying a property I have managed my credit profile poorly in recent years, but still wish to buy a property I have not really been managing my credit profile in recent years, but wish to buy a property Credit checks are not as relevant for the Help to Buy scheme as they are for conventional mortgages I have made late credit repayments in the last 12 months 8
Helping the Help to Buy Hopefuls When embarking on the mortgage application process, whether using Help to Buy or looking at more conventional products, would-be buyers should bear in mind the following: 1. Check their credit report and score before meeting lenders. Every lender uses a bespoke scorecard to determine how they rate each customer s application. Nevertheless, a person s statutory or commercially-available credit report (e.g. through Experian CreditExpert) gives an invaluable insight into what information a lender will see about them when they apply and their Experian Credit Score will help them understand what can be quite a complex process giving an indication of how mortgage lenders may view their creditworthiness based on past credit management. 2. Ensure everything is accurate and up-to-date. Simple issues like incorrect address details, linked accounts they may have forgotten about and not being on the electoral roll can hamper attempts to access a mortgage. Buyers should also play close attention to things like outstanding accounts that should be marked as settled. 3. Assess whether their credit score needs improvement. Although a consumer s credit score is not definitive, it does give a steer on how lenders may assess their Experian credit score. If it is relatively low it may be improved in a number of ways, depending on the reason, including: making sure they are on the electoral roll, reducing outstanding balances to less than 25%, and making more than just the minimum repayment on accounts each month. People should bear in mind that credit reports only include the last six years information and that most lenders focus on recent behaviour. 4. Remember that their credit report is only one part of the application. Lenders also use the information provided on the application form and data they already hold on applicants (for customers applying through their bank, for example). Affordability is also key even more so now than in the past. Applicants will need to prove they can afford monthly repayments once all other household outgoings are taken into account, for example, and that they can afford them if interest rates rise. 9
Helping the Help to Buy Hopefuls 5. Look to avoid additional borrowing in the run up to the application. A flurry of recent applications, particularly for loans, will worry most mortgage lenders as the borrower appears to be in financial difficulty. Additional borrowing prior to a mortgage will also affect affordability calculations. Buyers should be aware that their credit score is also likely to take a hit in the immediate wake of being granted a mortgage (until they have demonstrated they can manage this new debt well) which will have consequences if they need credit to help furnish their new property, for example. 6. Shop around smartly. Buyers need to do their homework. Decide what kind of mortgage they want and compare products they qualify for with a price-comparison site, a reputable mortgage broker or services like CreditMatcher which is available through Experian CreditExpert. Only when they have found the best deal for products they re most likely to qualify for should they seek an agreement in principle. 7. Ask for quotes and not agreements in principle. If buyers only want to know what mortgage rate they re likely to get and what repayments would be, this is a quote and it won t affect their credit score. But if they want to know if a lender is likely to offer them a certain size of mortgage this is an agreement in principle. That s treated as an application as it requires a full search of a buyer s credit report and it will leave a footprint on their report. Too many footprints and lenders may be concerned as it could look like you have been turned down elsewhere or even a possible indication of fraud. 8. And if they are unsuccessful: don t panic. They should speak to the lender and find out why. Their answer will determine the next step. If a buyer s credit report is poor, they should confirm what factors are bringing it down and address it as detailed above. But if everything seems in good order then they may simply have not met the lender s precise lending criteria. In that case, they may apply to another lender. Even though the lender will see the buyer has applied elsewhere, they are unlikely to worry if they meet the rest of the lending criteria and everything else in their report is strong. In any case, credit application searches appear on a credit report for one year and are wiped after that, with most lenders only concerned about applications made in the last three to six months. 10
Appendix: Regional Breakdowns North East In the North East, 32% of those surveyed said they would consider using the Help to Buy scheme next year. 38% said they were not looking to buy a property, with a further 30% saying they would be buying a property through a mortgage but not through the Shared Ownership scheme. At 37%, the North East region has the highest percentage of people in the country who did not have any deposit savings. Up to 60% of people in the North East were unaware of how a mortgage or the Help to buy scheme would affect their future credit applications. At 9%, the North East region also has the highest percentage of people who owe between 7,500 and 10,000 in personal loans or credit and store card debt, which was 2% more than any other region in that money bracket. North West In the North West, 45% of people said they were not looking to buy a property using the government s Help to Buy scheme, while 2% said they had considered the scheme but had been turned down. 42% of people said that they intended to take out further credit within a year of applying for Help to Buy. At 22%, the North West had the highest percentage of people in the country who had less than 5000 deposit savings, with 27% of people not having any savings at all. 56% of people in the North West did not know how a mortgage or the Help to buy scheme would affect their future credit applications. 30% of people looking to apply for a mortgage had never checked their credit report. Yorkshire and Humberside In the Yorkshire and Humberside region, 25% of those surveyed would consider using the government s Help to Buy scheme within the next year. Of the people who intended to apply for Help to Buy, 37% intended to take out further credit within a year of application. 60% of people were unaware of how a mortgage or Help to Buy scheme would affect their future credit applications. Just 14% of those surveyed had a savings deposit of more than 20,000 to buy a property, while 23% did not have any savings at all. At 34%, the Yorkshire and Humberside region had the highest percentage of people in the country who were looking at using Help to Buy, but had never checked their credit report. East Midlands In the East Midlands region, just 1% of those surveyed were considering using the government s Help to Buy scheme and 46% were not looking to buy a property at all. At 67%, the East Midlands recorded the highest percentage of people in the country who did not understand how the Help to Buy Scheme would impact future credit applications. The people in this region had the highest percentage of outstanding debt, with more than 15,000 for personal loans and cards. Almost two fifths of the people surveyed did not know where they stood in regards to redit score (42%). 11
Appendix: Regional Breakdowns The West Midlands The West Midlands had the highest percentage of people considering using the government s Help to Buy scheme within the next three months, with 13% saying they are currently considering it. The region also had the highest percentage of people considering using the shared ownership scheme to buy a property, with 18% considering registering within next six months. Just 18% of those intending to use Help to Buy did not have any deposit savings. Nearly half (49% )of those who wished to apply for the Help to Buy scheme intended to take out further credit within a year of their application. 43% of those looking to apply for a mortgage said they had never checked their credit report, with a further 36% saying they had not checked it in more than a year. East of England In the East of England, 28% of people said they were considering the government s Help to Buy scheme to purchase a property within the next year. 37% said that they would consider taking out further credit within a year of applying for Help to Buy. 59% of people were unaware of how a mortgage or Help to Buy scheme would affect their future credit applications. At 27%, the East of England had the highest percentage of people looking to buy a property who had checked their credit report within the past three months. At 15%, the East of England had the highest percentage of people who received 800-999 as their credit score. London In London 27% of those surveyed were looking to buy a property using the government s Help to Buy scheme. At 16%, London had the lowest percentage of people without a deposit or saving, with over 23% of people having saved of more than 20,000. At 53%, London had the highest percentage of people who intended to take out further credit the year after having applied for the Help to buy scheme. More than half of Londoners (54%) said they were unaware of how a mortgage or the Help to Buy scheme would affect their future credit applications. A quarter of those surveyed (25%) did not know what their credit score was. South East At 17%, the South East region had the highest percentage of people who had considered the government s Help to Buy scheme and then decided against it. Just 3% of those surveyed said they were considering using a shared ownership scheme to buy a property, with 22% saying they were looking to buy a property using a mortgage. 60% of people were unaware of how a mortgage or Help to Buy scheme would affect their future credit applications. 12
Appendix: Regional Breakdowns South West The South West has the lowest percentage of people considering using the government s Help to Buy scheme at just 3%. 19% of people looking to buy a property said they had no deposit savings, while a further 16% of potential property buyers had less than 5,000 in savings. The South West had the second highest region of people who were unaware of how a mortgage and the Help to Buy scheme would affect their future credit applications, at 65% 28% of those looking to apply for a mortgage had never checked their credit report, while a further 28% had not checked their report in more than a year. Wales Wales had the highest percentage in the country of people who were not in the property market with 55% saying they were not looking to buy. Of those intending to apply for Help to Buy, 45% expected to take out further credit the year after application. 61% of people were unaware of how a mortgage or the Help to Buy scheme would affect their future credit applications. At 83%, Wales had the highest percentage of people who were looking to apply for a mortgage but had never checked their report. Scotland In Scotland, 24% of those surveyed said they would consider using the government s Help to Buy scheme to purchase a property with the year. Of those intending to apply for Help to Buy, 41% intended to take out further credit within a year. 61% of people were unaware of how a mortgage and the Help to Buy scheme would affect their future credit applications. A quarter of those looking to buy a property did not have any deposit savings, while a further 21% had less than 5,000 saved. 42% of those applying for a mortgage had never checked their credit report. 13
Consumer Services Contact For more information or the statistics underlying this report, please contact: Experian Consumer Services Joanne Leahy PR Manager 077 9189 4469 joanne.leahy@experian.com Bell Pottinger Michael Sheen 020 7861 3013 msheen@bpconsumer.co.uk Rebecca Lloyd Wright 020 7861 2499 RLloydWright@bell-pottinger.com 14