Unless you’re very lucky, you’ll need a mortgage in order to buy your first home.
But the amount of mortgage misconceptions, contradictory rules and mind-boggling jargon out there can make it hard to understand how mortgages even work, let alone get one.
Below, we bust some of the most common myths that do the rounds and attempt to demystify the weird and wonderful world of mortgages.
- For a free chat with an expert about anything mortgage-related, from saving for a deposit to finding the right deal, call Which? Mortgage Advisers on 0800 197 8461.
Myth 1. You don’t need to think about mortgages until you’ve found your dream property
Sure, you won’t need to actually apply for a mortgage until you’ve had an offer on a property accepted. But you certainly need to have scoped out mortgages before then, to check what you can afford.
Different lenders will offer different amounts, but a good way of getting an accurate idea of your budget is to apply for a mortgage ‘agreement in principle’ (AIP). This is a statement from a lender that they would, in principle, lend you a certain amount of money.
- Find out more: Which? Mortgage Advisers’ guide to agreements in principle
Myth 2. You always need a deposit to buy a property
It’s true that you’d normally need a deposit of at least 5% to buy a property. But a few lenders have recently launched 100% mortgages, where you take out a loan for the entire cost of the property.
There aren’t many 100% mortgages available, though, and they all currently require a parent or close family member to put money aside to guarantee the loan or let the lender secure a charge over their own home. They also carry a serious risk of negative equity, which is when your property’s value falls and you owe more on your mortgage than your home is worth.
- Find out more: 100% mortgages
Myth 3. Your parents need spare cash if they want to help
Giving you a deposit or helping with a 100% mortgage aren’t the only ways your parents can help you buy a home.
If they’re homeowners, your parents could act as guarantors on your mortgage, meaning they would have to cover any shortfall if your property was repossessed and sold by the lender.
Your parents would have to secure a charge against their own home to do this, but it might boost your chances of being accepted by a mortgage lender.
- Find out more: how parents can help first-time buyers
Myth 4. You’ll be able to get a mortgage if your rent costs more than a mortgage would
Mortgage repayments may be cheaper than your monthly rent – but that doesn’t necessarily mean you’ll get accepted by a lender.
Before deciding whether to give you a mortgage, a lender will assess your income and outgoings to make sure you can afford the monthly repayments both now and if rates were to rise.
An independent mortgage broker such as Which? Mortgage Advisers (0800 197 8461) will be able to recommend the lender most likely to accept your application.
- Find out more: our mortgage interest calculator shows how an interest rate rise could affect your repayments
Myth 5. Can’t borrow enough? You’ll need a bigger deposit
Saving a big enough deposit can feel like an obstacle to buying your first home. But there are government schemes to help first-time buyers onto the property ladder.
With a Help to Buy equity loan you can borrow between 15% and 40% from the government towards the cost of a new-build home, depending on where you live.
Alternatively, with shared ownership you can buy a share of a property and pay rent on the rest. This means you can put in a smaller deposit than if you were buying an entire property.
- Find out more: schemes to help you buy
Myth 6. You can’t get a mortgage if you have a low credit score
Getting a mortgage can be difficult if you’ve got a bad credit history, but it’s not impossible. Some mortgage lenders offer bad credit mortgages specifically designed for people in this situation.
However, there is a difference between a bad credit history (due to missed loan payments or a CCJ, for example) and no credit history at all, which might be the case if you’ve never taken out credit or a loan.
If you fall into the latter camp, take some time to build up your credit score rather than opting for a bad credit mortgage, as these generally come with much higher rates.
- Find out more: improving your credit score
Myth 7. You can only get a mortgage from your current bank
Your bank might bombard you with adverts for its mortgage range and even offer preferential rates to you as an existing customer.
However, with more than 80 mortgage lenders in the market, it’s worth shopping around before deciding who to apply with.
There are thousands of mortgages available, meaning that finding the right deal can be overwhelming. A whole-of-market mortgage broker such as Which? Mortgage Advisers (0800 197 8461) can help you find the right mortgage based on your personal situation.
Myth 8. Lowest interest rate = cheapest mortgage
The interest rate you’ll pay is just one of several factors influencing the overall cost of a mortgage. You’ll also need to look at:
- Type of deal: the interest rate on a discount or tracker deal could rise at any time. On the other hand, a fixed-rate mortgage guarantees that your interest rate will stay the same for a set period of time, and could be more suitable if you want your mortgage repayments to stay the same each month during that period.
- Length of deal period: in most cases a fixed, discount or tracker deal will only last for a set number of years, known as the ‘initial deal period’. Afterwards you’ll be moved onto your lender’s standard variable rate of interest, which is usually much higher – meaning you should remortgage to a different deal at that point.
- Fees: many mortgages carry fees ranging from £100 to well over £1,000, making a big difference to the overall cost of the deal.
- Cashback: some deals have higher interest rates but offer cash when you take out the mortgage. This can be welcome at a time when you’re spending thousands on the costs of buying a home, but do weigh up whether it’s worth it in the long run.
Find out more: mortgage interest rates explained
Speak to a mortgage adviser
Whether you’re saving for a deposit or are ready to buy a property, it’s worth getting expert advice from a mortgage adviser.
The friendly team at Which? Mortgage Advisers will look at the full range of mortgages on the market before recommending the right deal to suit your circumstances – or, if you’re not ready to look at deals yet, they can advise you on your saving plan.
To chat to an adviser, call 0800 197 8461 or fill in the form below for a free callback.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.