Buying a house is one of the most exciting times of your life – whether you're making that first step on the ladder or climbing to the next rung. However, it can also be incredibly stressful. From choosing the perfect home in the right school catchment area to getting the most suitable mortgage, there are dozens of important decisions to be made.
Some information is helpful – the sort you receive from expert professionals – but other advice, though it might seem legit, is not always best heeded. The mortgage experts at MyLocalMortgage have compiled a list of the common myths home-buyers hear, along with the truth behind them.
1. Get the biggest mortgage you can afford
This is a throwback from way back when property values were rising rapidly. Getting on the ladder invariably meant embarking on an investment that would grow considerably in the next few years and with wages rising year-on-year, if it was a stretch at first 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 hits, you could be left in a situation of negative equity. It's a real risk to take.
Instead of taking on a massive mortgage you can barely afford, speak to your mortgage advisor about realistic borrowing based on your personal circumstances.
2. You can't get a 95% mortgage anymore
Granted, it is more difficult than it once was to get a mortgage of 95%. However, there are schemes in place such as the Government's 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 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?
4. You can’t get a mortgage if you’re self-employed
Homebuyers who are self-employed actually 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. 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 in order 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.
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.
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
This is false. Any monthly outgoings will be considered in your application in order 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.
As well as this, lenders will also conduct a stress test on your finances in case of a change in circumstances — providing assurance to them, and to 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 could, down the line, 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 being 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.
8. Your budget is set by the size of your mortgage
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 at less than 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
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.
However, in cities or towns where fast markets mean steadily increasing property prices, apartments and flats can still be a great investment.