First-time buyers with thin credit files or minor historic credit issues are becoming a larger part of the near-prime market, as brokers warn that deposit requirements remain the biggest obstacle to placing cases.

That is the central finding from Atom bank’s latest Near Prime Index, covering the second half of 2025, which suggests affordability pressures and patchy credit histories are pushing more would-be buyers outside prime lending criteria.

The report combines broker feedback, Atom’s own lending data and wider economic analysis. It draws a distinction between borrowers with more serious adverse credit and those whose circumstances are less clear-cut, including first-time buyers with limited credit history rather than meaningful repayment problems.

According to the index, defaults remain the biggest single contributor to near-prime status, appearing in 73% of Atom cases. But brokers said cost of living pressures have become a more significant driver, with 71% citing them as the primary reason for near-prime applications, up from 62% in the previous edition. Increased reliance on consumer credit and the impact of life events were also cited as important factors.

Atom said brokers continue to expect the sector to grow. Some 65% forecast a slight increase in near-prime demand in the coming months, while 12% expect a more pronounced rise. At the same time, 77% of brokers said mainstream lenders had increased their appetite for adverse cases over the past six months, with 12% reporting a significant increase.

Brokers also said the pricing gap between prime and near-prime borrowing has narrowed over the past year, suggesting greater competition in this part of the market.

FIRST-TIME BUYERS IN FOCUS

The report argues that first-time buyers now represent a growing share of near-prime business. Atom’s data shows 59% of its near-prime borrowers are trying to buy their first home, compared with 41% of its prime borrowers. Brokers, meanwhile, said first-time buyers accounted for 30% of their near-prime clients on average, up from 25% in the previous index.

Atom splits the market into two broad groups. The first is what it calls the rehabilitator borrower — typically an existing homeowner, aged about 40, borrowing below 85% LTV and carrying historic credit issues often linked to events such as divorce or job loss. The second is the starter borrower — generally aged about 35, seeking around 90% LTV and more likely to be shut out of prime lending because of a thin credit file or a small number of missed payments rather than deep-seated credit problems.

For this second group, the challenge is often not willingness to pay but lack of evidence. More than a quarter of brokers, 27%, said a thin credit file was a particular problem for near-prime first-time buyer clients. Atom notes separate Experian research suggesting around five million people in the UK are effectively invisible to the credit system because too little financial data exists on them.

The report also suggests that higher LTV lending in this market does not automatically equate to higher risk. Among Atom’s near-prime borrowers at 90% LTV, 20% had no adverse events on record and 29% had only one, indicating that some borrowers are being categorised as near-prime because of limited credit exposure rather than repeated financial distress.

CALLS FOR MORE HIGH LTV OPTIONS

The strongest practical concern raised by brokers was deposit size. More than a third, 36%, said this was the single biggest barrier to submitting an application for near-prime first-time buyers. LTV availability was named by 39% as the most important feature when choosing a lender, narrowly ahead of flexibility on credit history at 38%.

Richard Harrison, head of mortgages at Atom bank, said: “The housing ladder only functions if first-time buyers can access it. However, as our latest Near Prime Index makes clear, that accessibility is increasingly reliant on lenders being more flexible over the credit profile of the borrower, whether that’s due to payment hiccups in the past or simply the fact that the borrower has little credit history to speak of.

“A broader range of high LTV Near Prime products is essential, with the LTVs on offer often the primary driver for lender selection. While brokers have reported seeing greater levels of competition among mainstream lenders, this progress may have stalled due to the current market uncertainty. We must hope that progress not only resumes when the conflict concludes, but that we see it result in greater choice for borrowers at all deposit levels.”

David Castling, head of intermediary distribution at Atom bank, said: “In the last Index, the proportion of brokers’ Near Prime clients who were first-time buyers stood at 25% on average, but it’s now risen to 30%. Near Prime is evolving into a crucial access option for those looking to get onto the housing ladder, with buyers increasingly reliant on lenders who can treat apparent credit problems on a case-by-case basis.

“First-time buyers and existing homeowners alike are seeing the impact of cost of living pressures, with the effects of rising bills and persistent inflation pushing more borrowers into the Near Prime category. Brokers have been clear that lenders need to take a more details-based approach to these borrowers, getting a better understanding of their specific circumstances rather than viewing all adverse credit the same way.”

Murray Ewing, operations director of broker The Lending Channel, added: “An imperfect credit score should not be seen as a life sentence. However, there are some lenders who will fail a customer based on minor issues, like a default, rather than looking at what caused it, and why.

“Life events, like a job loss or a death in the family, can impact anyone. But even when the event has been resolved, the mark remains on the credit file. I’d like to see lenders have more empathy towards borrowers, more understanding towards what can be a one-off issue.”