Mortgage Myths for First Time Buyers

Buying a house can be one of the most stressful times of one’s life, so it is very important to understand the processes and the facts around mortgages in order to make the best decisions. We always recommend speaking to a mortgage adviser as there are many lenders, and every lender has many mortgage schemes available. Finding the right one for you can be a tricky job.

Below are some of the myths that first time buyers may be put off by, and the reasons not to believe them.

1.???The first step is to find a property

Many people are told to find a property before you do anything, however, this can often lead to disappointment. Lenders have rigorous affordability calculations, and, if you do not fit the “model” you may not be able to borrow what you need.

Speak to your mortgage broker to decide how much you can realistically afford, both now and in the future, especially if interest rates continue rising. Once you know how much you can borrow and how much deposit you have, you can then look for properties within your price range.

2.???You must have a large deposit

It is true that the larger your deposit the better the rates and the more options you will have available to you. However, many lenders will still lend up to 95% of the property value, so you would only require a 5% deposit (plus funds to cover the costs involved – ask your broker to detail these for you in advance).

There are also numerous schemes available to make it easier to buy with a smaller deposit, such as the government’s Help to Buy scheme. Ask your broker for more information on these schemes before you start to look for a property.

3.???You won’t get a mortgage if you have poor credit

Lots of people are put off applying for a mortgage, wrongly thinking that their bad credit rating will prevent them from borrowing.

Many lenders now cater for people that have had credit problems in the past, and you mortgage broker will have the knowledge to ensure you get approved. There are also ways to help improve your credit score, so it is worth having the discussion well in advance of you actually buying.

4.???Being self-employed means you cannot get a mortgage

This is certainly not true. Most lenders will be able to lend to the self-employed, although many will require 2 years’ track record as a minimum (some will lend with only one year’s experience). Again, your broker will know which lenders are able to consider an application based on your specific circumstances.

Many lenders will also lend to company directors, whose income can be from a number of sources (salary, dividends, net profit), entrepreneurs, who may have multiple income streams or erratic incomes, and the elderly who may only have small pension income but lots of equity on their property.

Ensuring you have the necessary paperwork is important, and most lenders will want to see either accounts (usually prepared by a qualified accountant – check with your broker for which qualifications are acceptable) or tax calculations and tax year overviews (these are available from the HMRC website or your accountant). Note that most lenders will need the most recent tax return to have been completed.

5.????Renting is cheaper than buying

It may sometimes seem that renting is cheaper than buying, however you must consider that some of the mortgage repayments go to repaying the mortgage capital. As such, you are increasing the equity (the amount you actually own) in the property. As such, although the monthly payment may be higher, renting is often more expensive in the long term. Your adviser will be able to help you calculate which is more profitable for you.

Please remember that buying a house is a huge decision and one that can have many benefits, both long term and short term, but there are always risks involved. For instance, if you do not keep up the repayments on a mortgage, your mortgage lender may repossess your house. Always think very carefully before taking on any financial commitments, and make sure the repayments are affordable, even if the rates go up. It is also important to consider the various types of protection, such as mortgage protection, income protection and family protection, as well as house insurance.

Please feel free to contact PKS for a free and impartial chat about your circumstances and what you may or may not be able to achieve. We are experts in all areas of mortgages and insurance.