Nine mortgage myths busted

We've de-bunked nine of the most common mortgage myths that might be putting you off and explain what the real facts are.

Nine mortgage myths busted

Many people are put off from applying for a mortgage because they don’t think they’ll be able to get one, or because they don’t know where to start when it comes to finding a good deal. If you’re nervous about taking out a mortgage, we’ve de-bunked nine of the most common mortgage myths that might be putting you off and explain what the real facts are.

1) You should wait until you’ve found a property to buy before you look for a mortgage

The sooner you start looking for a mortgage the better if you’re considering buying, as it’ll mean you have an idea of how big a mortgage you can get, and how much it will cost you. You can apply to a lender for a ‘decision in principle’ before you start your property search. This tells you how much they are prepared to lend you ‘in principle’ although there are no guarantees that they will definitely offer you a mortgage until you’ve been through the full application process. Having a mortgage decision in principle can be a real help when you start house-hunting, as it shows sellers you are serious about buying.

2) The best place to get a mortgage from is your bank

There are hundreds of different mortgage deals to choose from, so it’s vital to look at mortgages from a wide range of lenders so that you can be sure you’ve found the best deal to suit your needs. You’re under no obligation to get a mortgage from your bank, and you might find a much better mortgage elsewhere. If you need help choosing a mortgage, a broker can shop around on your behalf and explain which deals are likely to be most cost-effective for you.

3) You can’t get a mortgage if you’re self-employed

Millions of people in the UK are self-employed , but working for yourself doesn’t exclude you from getting a mortgage. Providing the necessary proof of earnings can sometimes be a challenge, especially if you are recently self employed, but some lenders are prepared to offer mortgages with only one or two years of accounts. However many years of accounts you have, you’ll need to be able to demonstrate to lenders that you have a regular income and can keep up with repayments so that you pass their affordability checks.

4) The lower the mortgage rate, the cheaper the mortgage will be

Low mortgage rates might be tempting, but it’s really important to work out the overall cost of any deal before you apply. The deals with the lowest rates often have the highest arrangement fees, which can substantially bump up the total amount you’ll pay. This means that depending on your individual circumstances and the amount you’re borrowing, it might be more cost-effective to go for a mortgage with a slightly higher interest rate but lower arrangement fees. As a general rule, if you’re taking out a big mortgage, a lower rate deal with higher fees might work out cheaper for you, whereas if you only need a small mortgage, you may be better off choosing a deal with a higher interest rate but lower set up costs.

5) You can’t get a mortgage without a big deposit

Don’t assume you won’t be able to get a mortgage if you can’t afford to save a big deposit. Many lenders offer 95% mortgages which only require you to put down a deposit equivalent to 5% of the property value. There are also Government schemes which are designed to help those with smaller deposits get onto the property ladder, such as the Help to Buy equity loan. This enables first time buyers to put down a 5% deposit with the Government then lending up to 20% of the property price interest-free for the first five years, or up to 40% of the property price if buying in London. The scheme is only available for new build properties up to regional price caps and you’ll need to hurry if you want to apply as the scheme closes to new applications on 31st October 2022.

6) You can only get a mortgage if you have a perfect credit rating

There’s no escaping the fact that having a good credit score can help boost your chances of getting a mortgage, but if you’ve made a few slip ups managing debts in the past, this doesn’t mean your application will automatically be refused. There are lenders which specialise in offering mortgages to people with a lower credit rating, although interest rates can be higher. Whatever you think your score might be, it’s a good idea to get a copy of your credit report before you submit your mortgage application. This will enable you to see whether you might be able to improve your credit rating, or if there are any ‘red flags’ such as missed payments that might result in your application being refused. You can learn more about the impact your credit score can have in our guide How does your credit score affect your ability to get a mortgage?

7) My parents can’t help me get a mortgage because they don’t have enough savings

Lots of first time buyers turn to the Bank of Mum and Dad to help them get onto the property ladder, but if your parents aren’t able to lend or give you savings to put towards a deposit, there may still be other ways they can help. For example, some lenders will allow parents to use their own property as collateral so that their child can get a mortgage. However, if you’re considering doing this, remember that the lender can call on this if the child doesn’t keep up with their mortgage payments. Alternatively, parents might be able to help boost the amount you can borrow by being a joint borrower on the mortgage. Some lenders won’t require them to be a joint owner, which can be beneficial from a stamp duty and capital gains tax perspective.

8) You can’t get a mortgage on a ‘non-standard’ property

>If you’re looking to buy a property above a shop or restaurant, or a flat that’s in a high-rise block, you might assume that you won’t be able to get a mortgage. However, there are lenders who can consider lending on properties above commercial premises or in taller buildings. It makes sense to flag anything unusual about the property so your broker can advise where you’re most likely to be accepted for a mortgage on a non-standard property.

9) It’s cheaper to rent than buy

Taking out a mortgage may feel like a massive financial commitment, but don’t assume that you’ll pay less if you rent your home. Research carried out by Halifax earlier this year found that owning a property is in fact cheaper than buying, with the average cost of owning a home £1,378 cheaper than renting in 2021. However, there are of course pros and cons to both, and whether or not buying is cheaper for you depends on how much you’re borrowing and how much it’ll cost you to maintain the property you want to buy. It’s worth getting professional advice so you can see exactly which option might be cheaper for you.

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