The latest government initiative to support first-time buyers through a backed 5% mortgage scheme is a huge relief to the thousands of young people looking to put their first foot on the property ladder. For many first time buyers, taking on a mortgage can be daunting, especially if you don’t have a clear understanding of what steps to undertake to get a mortgage secured.
To give you a helping hand to understand the journey of securing a mortgage, we have researched the biggest myths around mortgages, debunking them along the way.
Myth 1: You don’t need to bother finding a mortgage until you have found your perfect property
Although it is true you don’t need to actually apply for a mortgage until you’ve found your perfect home and had an offer accepted, researching into your eligibility and checking what you can realistically afford will help you narrow down your search, and give you a realistic picture of what area or home you should be looking for. The criteria for each lender on how much they would be willing to lend you changes depending on their internal checks, and you could get a higher offer by using a mortgage broker rather than going directly to a bank. Applying for a ‘Mortgage in Principle’, which is a statement from a lender that they would potentially accept you for a certain amount of money, is one of the first tasks you should undertake when starting your search for a new home.
Myth 2: You won't be accepted for a mortgage if you have an overdraft
It is possible to get a mortgage if you have an arranged overdraft, but lenders will take this into account (along with any debt or financial commitments you have) during your assessment. Lenders will only offer what they anticipate you can comfortably afford each month, and this includes monthly payments to pay off overdrafts and credit cards.
It is important to reduce any outstanding debts as this could mean you are offered a lower mortgage amount, and you will need a bigger deposit to make up for the amount needed to secure the property you are looking to buy. Applications for new streams of credit, such as car finance or personal loans will also be taken into account, so keep any new applications to a minimum before applying for a mortgage.
Myth 3: Lenders will offer you a mortgage if the monthly payments are lower than your rent
Mortgage payments can often be lower than your monthly rent, but that doesn't mean you will automatically be accepted. A lender will take any current outgoings into consideration, but as every lender has different affordability criteria, there are other factors that will be considered, such as income and outgoings, and affordability if rates were to rise. Using an independent broker will allow you to get recommendations on the lenders most likely to offer you a mortgage.
Myth 4: You can't get a mortgage if you have a bad credit score
Although potential buyers with a bad credit score are going to find it difficult getting a decision in principle or a mortgage offer, it isn’t impossible. Some lenders have specific products for people that have a low credit score or a bad credit history, or even those with no credit history at all. These mortgages usually come with much higher rates than the mortgages offered by highstreet lenders, so it may be better to take some time to build up your credit score rather than pay over the odds if your personal circumstances allow it.
Myth 5: You’ll need a bigger deposit if you can’t borrow enough
Saving for your first home can feel like an uphill battle, especially if you then come to find out that you don’t have enough for your dream home. Thankfully, the government has a range of schemes to help you get on the ladder. The Help to Buy loan allows you to borrow between 15% and 40% towards the cost of a new build home, or shared ownership schemes allow you to buy a share of a property and pay rent on the rest - meaning you can put in a smaller deposit than if you were borrowing against the full value of the property. The government backed 95% LTV mortgages have also given hope to millions of first time buyers, as they now just have to put down a 5% deposit on properties.
Want to find out more about the mortgage process? Speak to our team of experts today.