Stricter mortgage lending standards are making it harder for many Americans to buy a home, particularly those with moderate credit scores, as high borrowing costs and falling sales keep the housing market under pressure.
A study by the Pew Charitable Trusts found that tighter rules introduced after the housing crash reduced delinquencies and defaults, but also narrowed access to mortgages for some households that may be able to manage repayments.
Mortgage lending to borrowers with credit scores between 600 and 699 has fallen sharply. Between 2005 and 2024, their share of mortgage originations dropped by 13.3 percentage points to 22.3 per cent, while the share going to borrowers with scores of 700 or above rose by 24.9 percentage points.
Adam Staveski, a principal associate with Pew’s housing policy initiative, said: “Although borrowers now take on more debt as a share of their income than ever before, they must have a pristine credit history to be approved for a loan.”
The stricter approach followed abuses during the housing boom, including so-called “liar loans” that required little proof of income. The changes have helped limit defaults, alongside measures such as forbearance, loan modifications and payment deferrals.
Only 4 per cent to 5 per cent of delinquent borrowers now default, compared with 55 per cent in the early 2000s, according to the study.
But credit scores tend to favour people with long borrowing histories and sufficient financial reserves. Pew said the system therefore disproportionately affects young adults entering the property market, lower-income families, rural communities and Black and Hispanic households.
“Although some of these potential borrowers might not be financially prepared to take out a mortgage, others are excluded because of a thin or nontraditional credit history, or because the federal government’s credit standards are historically high,” Mr Staveski said.
He added: “While tighter standards have made the mortgage market safer, they have also made it harder for some qualified individuals to achieve homeownership.”
Mortgage rates and home sales remain under pressure
The wider housing market has shown little sign of recovery since the Covid-era boom ended, with expensive borrowing, limited supply and elevated house prices continuing to weigh on activity.
The average 30-year fixed-rate mortgage rose to 6.76 per cent from 6.71 per cent the previous week, mortgage buyer Freddie Mac said. The rate was 6.35 per cent a year earlier and is at its highest level since June 2025.
Existing-home sales fell by 2 per cent in the latest month from July, to a seasonally adjusted annual rate of 3.98 million units, the National Association of Realtors said. It was the third consecutive monthly decline and represented a 1.2 per cent fall from a year earlier.
Thomas Ryan, senior North America economist at Capital Economics, said mortgage rates would almost certainly rise above 7 per cent as the 10-year Treasury yield reached its highest level since 2023.
He said the forecast for existing-home sales to average 4.1 million this year now appeared “slightly optimistic”, with transactions more likely to average close to 4 million — their weakest annual result since 1995.
