10 Common Mortgage Myths Debunked
Updated: Sep 30, 2020
Finding the right type of mortgage for your new home can be confusing. But did you know there are many little-known facts that could make all the difference? From knowing how much deposit you will need to whether you can get a mortgage if you’re self-employed, online advice can seem overwhelming at times.
We have debunked ten common mortgage myths below to help you make a more informed choice when you’re looking for a mortgage:
1. You need a good credit history
You may be surprised to learn that a little bad credit can sometimes be better than having no credit at all. However, there are various ways to build up your credit score over time, which includes keeping your available balance on credit cards to around 50% of your credit limit. Although it can prove tricky to be accepted for a mortgage if you have a low credit score, it is possible as long as you seek the right advice.
2. You need a big deposit to buy a home
This is not necessarily the case and will depend on certain factors. Usually, you would need a 20% minimum deposit, but there are different options available. Up until recently, you could save into the Help to Buy ISA, which had an attractive bonus for first-time buyers. Although this scheme has now closed, if you are under 40, you can still save into the Lifetime ISA (LISA). This scheme offers a 25% bonus to boost your savings when put towards a deposit to buy your first home. If you are looking to buy a new build property, then the Help to Buy Equity Loan will enable you to borrow an amount from the government towards your costs (between 15% - 40%). Shared Ownership schemes can also enable you to buy a share of your new home while you pay rent on the remaining balance. Investing is also an option for some, and can potentially help you reach your savings goal sooner, depending on your circumstances.
3. You can only get a mortgage through your own bank
Despite this seeming like a logical step, your bank may not necessarily be offering the best deal for your situation. It’s worth checking rates with a whole-of-market Mortgage Adviser, who will independently search thousands of mortgages to find you the right deal.
4. It's always best to fix your interest rate
This is not always the case; this would depend on your personal situation, level of capital and chosen level of risk. Although a fixed-rate mortgage can offer you certainty when it comes to your monthly costs, the starting rate could be higher than a variable product. Also, if the interest rates were to drop, then your payments would stay the same, and you could face certain penalties if you choose to leave early.
5. You have to be a certain age before you can get a mortgage
As long as you’re over 18, you’re potentially eligible for a mortgage. However, some specialist lenders (such as for a buy-to-let mortgage) do stipulate a minimum age of 21. There is also no upper age limit on most mortgages, but this would depend on the deal (there may be certain restrictions) and your financial situation.
6. You need to be in full-time employment
Due to the growth of flexible and freelance working, most lenders recognise that many people are contracting nowadays. As long as you can prove that you have a regular source of suitable income, then there’s no reason to believe that you will be refused by a mortgage lender.
7. You shouldn't look at properties before applying for a mortgage
This isn’t true because the type of mortgage you will be able to afford will rely on your choice of property. So, if you want an idea of how much your mortgage will cost, then you need to do some mortgage research before you settle on your dream home.
8. It's harder to get a mortgage when you're self-employed
Although mortgage rates are usually better if you’re employed, there are still many options available for the self-employed. It is also possible to get a mortgage with only one year’s accounts from a specialist lender. However, their interest rates tend to be higher. Whatever your situation, it’s important to seek advice from a qualified Mortgage Adviser, who will be able to find you a suitable deal with a competitive rate.
9. You need to have life insurance before getting a mortgage
This is a surprisingly common belief but is untrue. The only type of insurance policy you will need to take out before getting a mortgage is building insurance, which is a legal requirement. However, once you have been accepted for a mortgage, life cover is well worth considering. This will ensure the mortgage will continue to be paid should the worst happen, and you were to pass away. Should you wish to purchase life insurance, there are a number of cover options available which we can help you with.
10. You can't get a mortgage on a single salary
If this were the case, millions of people would not be homeowners! Being accepted for a mortgage will depend on your level of income, not on whether it’s a single salary. Mortgage lenders will calculate your ‘affordability’, which means multiplying your income to determine how much you can afford to borrow. Other factors will also be considered, such as the size of your deposit and your monthly outgoings, such as household bills.
Whether you’re a first-time buyer or you’re looking to move house for the last time, it’s essential that you seek professional advice from an independent Mortgage Adviser. After all, moving house is one of the biggest investments you are ever likely to make, so why not be certain you’ve made the right choice?
Do you need mortgage advice or have a question about your current mortgage? Get in touch with our team today, who will be happy to talk through all your available options.
2. Post Office: https://www.postoffice.co.uk/mortgages/mortgages-myths-busted
3. MoneySavingExpert: https://www.moneysavingexpert.com/savings/help-to-buy-ISA/
4. MoneySavingExpert: https://www.moneysavingexpert.com/mortgages/