HomeOwners Alliance: mortgage myth-busting
Most first-time buyers are holding themselves back before they’ve even spoken to anyone. New research from the HomeOwners Alliance shows why.
When you’re buying a home and especially if you are doing it for the first time, you’re flooded with an almost overwhelming barrage of information about the property you’re interested in purchasing, the legal side of transferring its ownership to you, the assessment of its condition in the survey and the many different ways you can finance the purchase. It can all feel a little bewildering, particularly when some of the information you receive might not be factually correct.
For those working to a constrained budget, there are many stories and myths that have grown up around the subject of getting a mortgage, which might have created the belief that certain products are beyond your reach or that you must opt for a loan that means you end up paying more than necessary.
To help walk through this, the HomeOwners Alliance (HOA) analysed research data from first-time buyers and set out to debunk some of the most common myths around getting a mortgage.
The six most common mortgage myths
65% believe that a bad credit score prevents you from taking out a mortgage — this is quite a well-known myth often touted as a fact, but it’s not true. While a poor credit rating can make getting a mortgage difficult, it won’t necessarily prevent you from finding a loan. It’s for this reason that experts recommend seeing a mortgage broker, as they will have all the latest products available and will be able to find something that matches your requirements and financial means.
62% believe that, to buy a home, you need to find at least 10% of the house price — again, there are several lower deposit and no deposit packages available on the market. A mortgage broker will be able to help you find the appropriate product that matches the amount you have currently saved up.
49% believe that the maximum you can borrow is 4 or 5 times your annual income — it’s understandable where this comes from because older generations will remember this being the case, but in the last decade or so, house price inflation has outpaced the average growth in annual income significantly. Many lenders are now providing mortgage products with increased multiples of annual income. The premiums might be higher, or it might need to be a longer-term loan, but there are products available.
47% correlate the lowest interest rate with the cheapest mortgage — the focus is often on the headline mortgage rate when making comparisons, but, as HOA points out, with a variety of charges and fees to take into account, the interest rate is just one factor to consider when calculating the right mortgage for your needs.
40% believe that their current bank is the best source of a mortgage product — this belief severely limits your options because the bank you are with will only have a small number of the mortgage products available across the market. Another reason to make an appointment with a mortgage broker.
25% believe that you must find a property before even thinking about a mortgage — not knowing what you can afford weakens your position significantly when it comes to putting in an offer. Most sellers will choose a lower offer from someone who can prove they can finance the purchase over a higher offer from someone with no evidence of affordability. Seek advice from a mortgage broker to understand what products are available, then apply for a Mortgage in Principle, a document from the lender confirming how much they would be willing to lend you at this early stage. This gives the vendor confidence that you are serious about buying.
What this means for first-time buyers
Ultimately, HOA’s survey findings show an understandable level of naivety from first-time buyers, but all of these misconceptions can be overcome by seeking advice from a professional, independent advisor who can provide guidance on the best fit for your needs.
As Paula Higgins, CEO of HomeOwners Alliance, commented:
“Too many first time buyers are putting themselves out of the running before they have even had a proper conversation with mortgage experts about what might be possible.
Misunderstandings about deposits, borrowing limits and how mortgages work are denting confidence at the very first hurdle.
At the same time, some who do press ahead may be focusing on the wrong things, such as headline rates or sticking with their existing bank, rather than looking at the overall cost and the full range of options available.
Getting clear, independent advice early on can make a real difference.”
Sort your conveyancing at the same time
Sorting your mortgage is one piece of the puzzle. The legal side of your move needs to be in good hands too. Best Value Conveyancing provides a fixed-price, no completion no fee service, with all standard disbursement costs confirmed upfront.
Call 0800 0387 007 or get a quick quote to get started.
