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Top 10 home-buying and mortgage myths you shouldn’t believe

Mirror logo Mirror 3 days ago Suruchi Sharma Diwan

Buying a home is one of the biggest and most important financial decisions of your life. Though quite exciting, it can be incredibly stressful too, considering the number of decisions and legal arrangements you will have to take to arrive at a decision. More so, if you are a first-time buyer.

For that reason alone, you need to use the best, most accurate information you can find. Unfortunately, there are a lot of misconceptions around the process.

To address this issue, the mortgage experts at MyLocalMortgage have compiled a list of the most common home buying and mortgage-related myths, along with the truth behind them.

1. Get the biggest mortgage you can afford

graphical user interface: Speak to your mortgage advisor to get a realistic picture based on your circumstances © Getty Images/iStockphoto Speak to your mortgage advisor to get a realistic picture based on your circumstances

This used to be a norm when property values were rising rapidly along with year-on-year wages. Getting on the ladder invariably meant embarking on an investment that would grow considerably in the next few years and with wages rising, it would soon become affordable.

However, as we now know, it is not always guaranteed that wages will increase in line with inflation. Plus if you've taken on a huge mortgage to afford your dream home and recession or pandemic hits, you could be left in a situation of negative equity.

“Instead of taking on a massive mortgage you can barely afford, speak to your mortgage advisor about realistic borrowing based on your circumstances,” explains Paul Wheatcroft, Mortgage Advisor and Property Expert from MyLocalMortgage.

2. You can't get a 95% mortgage anymore

a calculator on a wood surface: Make use of government schemes such as Help to Buy to achieve a higher value © Getty Make use of government schemes such as Help to Buy to achieve a higher value

Though it is more difficult than it once was to get a mortgage of 95%, there are schemes in place such as Help to Buy, which aims to help more people become homeowners of new build properties.

While this isn't the traditional 95% mortgage, lenders are still required to find just a 5% deposit, while the government loans you the extra 20%. So you'll only require a 75% mortgage.

On existing homes, there is the option of the Help to Buy mortgage guarantee scheme, which offers lenders the possibility of achieving a high-loan-to-value mortgage of 80-95%.

The Government offers lenders the option of purchasing a guarantee on the mortgage loan. The benefit? The potential to purchase a property with a small deposit but the potential for lower, more affordable monthly payments.

3. The cheapest mortgage is the best option

Yes, cheap is good, but when selecting a mortgage it is imperative you look at the bigger picture. A smaller monthly payment may look attractive but is it a fixed rate or a tracker mortgage?

Tracker mortgages could shoot up quickly if the base rate rises while fixed rates ensure your monthly payment stays within budget for a specified number of years.

It's also a good idea to consider fees. “Does your cheap mortgage come with an enormous arrangement fee? Is it really the bargain it looks like? Additionally, look into exit fees and early repayment charges – do they correspond with your plan for the property or will they cost you dearly when you come to move in a few years? these are the questions you need to ask before taking a decision,” cautions Paul.

4. You can’t get a mortgage if you’re self-employed

a close up of a keyboard: Self-employed people have access to the same mortgages as somebody who is in employment © Getty Images Self-employed people have access to the same mortgages as somebody who is in employment

Homebuyers who are self-employed actually do have access to the same mortgages as somebody who is in employment. However, where employed buyers have access to payslips, those self-employed do not.


Gallery: Things your bank really doesn't want you to know (Lovemoney)

This means that the process for proving that you can make repayments on your mortgage could be more difficult.

Self-employed people will need to produce an SA302 form for their earnings to be taken into account by a lender.

“If you are self-employed and need specialist advice, seek the help of a mortgage broker who has a specialism in that area. They will show you the full range of options available to you, and provide advice on how to put in a squeaky-clean application,” says Paul.

5. Your bank can give you the best mortgage

When shopping for mortgages, it pays to be thorough. Although you could save time by going straight with your bank, first-time buyers and those with potentially challenging applications should always assess the full breadth of the market to find the most suitable mortgage.

Paul thinks, “Going with a mortgage broker is always a good idea - their knowledge of local markets as well as their relationships with lenders can ensure you get the best deal.”

6. Bills, debt and other outgoings won’t affect my application

a woman sitting at a table using a laptop computer: Keep your expenses in control as they will be considered in your application to assess mortgage affordability © Getty Images/iStockphoto Keep your expenses in control as they will be considered in your application to assess mortgage affordability

This is false. Any monthly outgoings will be considered in your application to assess mortgage affordability. This includes grocery bills, utility bills, debt repayments, car finance, or even what is deemed ‘reckless’ spending at clothes retailers, betting shops, or on nights’ out.

All of these general expenditures will help the lender to assess your disposable income. Hire purchases or financed purchases will be annualised and the final amount taken off your annual income.

Apart from this, lenders will also conduct a stress test on your finances in case of a change in circumstances - assuring them, and you, that mortgage repayments would always be made.

7. If you can’t save up for a deposit, get a personal loan instead

Saving up for a deposit is time-consuming and difficult - and for those living in areas where property prices are above the national average, it can also seem endless.

Although borrowing money with a personal loan can seem like a quick fix, it can later result in you being turned down for a mortgage. This is because the lender would undoubtedly have concerns about you being able to pay off the loan that you secured for the deposit, alongside paying off the mortgage each month.

Borrowing money for a house deposit would result in you having an almost 100% loan to value (LTV). This is why borrowing for a deposit is seen as a risk. It could even be a deciding factor in your application being turned down.

However, financial gifts from family are not seen as a risk - as they do not have to be paid back. "You should always be ready to declare and prove where your deposit funds have come from," shares Paul.

8. Your budget is set by the size of your mortgage

Do not use the entire mortgage amount in buying your dream home, save some for contingencies © Getty Images/Science Photo Library RF Do not use the entire mortgage amount in buying your dream home, save some for contingencies

Once you have a mortgage agreement in principle (AIP), you can start looking for your dream property. However, although your lender has agreed to give you a certain amount of money, this doesn’t mean you have to spend it all.

Mortgages can also be used to cover home improvements, so if you can only afford to buy a fixer-upper, it’s a good idea to set your buying budget below your full mortgage amount, leaving room in your spending for all those fixtures and fittings that you really want.

9. The property’s asking price is the price you will pay

Although in some markets this could be true, generally speaking, in England and Wales, people will offer below the asking price and be prepared to negotiate up. This means that huge savings can be made if you initially send in a lower offer than what the property is listed for.

In Scotland, the process differs slightly. If a property is advertised as ‘fixed price’, it means that it will be sold to the first person to offer that price. This means that it is often first come, first served.

If a property is advertised as ‘offers over’, to make an offer, your solicitor will note your interest. Once a seller has received a few notes of interest they may set a closing date - your offer should be made before the closing date.

If the property is labelled with a ‘guide price’, your solicitor should advise you on a sensible price to pay, and then the vendor will either accept your offer or set a closing date to find their best offer.

10. Buying a flat is a bad investment

In fast-growing cities and towns, buying a flat can be a good investment © Getty Images/iStockphoto In fast-growing cities and towns, buying a flat can be a good investment

Although this is generally not true, this assumption is grounded in the fact that houses are freehold - meaning that you own the property outright for an indefinite period, whilst flats or apartments are leasehold - meaning that you own the property for a specific term only. At the end of the term, the property reverts to the freeholder.

“When buying a flat, be careful to note the length of the leasehold. If a property has less than 80 years on the leasehold, it may be difficult to either sell or remortgage. You should also be careful to make a note of any annual fees for shared space maintenance, like gardens, corridors and hallways, and be clear on where the responsibility lies,” warns Paul.

However, in cities or towns where fast markets mean steadily increasing property prices, apartments and flats can still be a great investment.

What confuses you most about mortgages? Let us know in the comments section.

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