Buying a home is one of the most significant financial decisions you’ll ever make, and the process can feel overwhelming, especially when you start hearing conflicting advice. The mortgage market in the UK is filled with myths and misconceptions that can confuse first-time buyers and even those looking to move up the property ladder.
In this article, we’ll debunk some of the most common mortgage myths, helping you make informed decisions on your journey to homeownership.
Myth 1: You Need a Huge Deposit to Get a Mortgage
Reality: While it’s true that a larger deposit can give you access to better mortgage rates, you don’t necessarily need a huge deposit to buy a home. In fact, there are now even £5,000 deposit mortgages available.
However, it’s essential to consider that a smaller deposit might mean higher monthly repayments and interest rates. But if saving up a large deposit feels impossible, know that there are still viable options available to you.
Myth 2: You Can Only Get a Mortgage if You Have a Perfect Credit Score
Reality: While having a good credit score can help you secure a mortgage with favourable terms, it’s not the only factor lenders consider. Lenders will look at your overall financial situation, including your income, employment history, and current debts. Even if your credit score isn’t perfect, there are specialist lenders who cater to those with less-than-perfect credit.
It’s also worth noting that different lenders have different criteria, so if one lender rejects your application, it doesn’t mean others will do the same. Consulting a mortgage broker can help you find lenders who are more likely to approve your application.
Myth 3: Self-Employed People Can’t Get Mortgages
Reality: Being self-employed does not automatically disqualify you from getting a mortgage. However, the application process can be a bit more complex. Lenders typically require at least two to three years of accounts to prove your income, and they may look for stability in your earnings.
If you’re self-employed and planning to apply for a mortgage, it’s crucial to keep your financial records in order. Having a qualified accountant can also be beneficial. Some lenders are more flexible with self-employed applicants, so working with a mortgage broker who understands your situation can increase your chances of success.
Myth 4: The Best Mortgage Deals Are Only Available Through Your Bank
Reality: It’s a common misconception that you should always go to your bank for a mortgage. While your bank might offer competitive rates, they are unlikely to have access to the full range of mortgage products on the market.
Independent mortgage brokers can access a wide range of mortgage products from various lenders, including deals that aren’t available directly to the public. By working with a broker, you might find a mortgage that better suits your needs and financial situation.
Myth 5: Once You Have a Mortgage, You’re Locked In
Reality: Many people believe that once they’ve secured a mortgage, they’re stuck with it for the duration of the term. However, this isn’t the case. You have the option to remortgage, which means switching your current mortgage to a new deal, either with your existing lender or a new one.
Remortgaging can be a smart move if your current deal is about to end, or if you’ve found a better rate elsewhere. It’s also an opportunity to release equity from your home if its value has increased. However, it’s important to consider any early repayment charges or fees associated with remortgaging before making the switch.
Myth 6: Interest Rates Are the Only Thing That Matters
Reality: While interest rates are a crucial factor in choosing a mortgage, they are not the only thing that matters. Other factors such as fees, the length of the fixed term, and the flexibility of the mortgage can also have a significant impact on the overall cost.
For example, some mortgages come with high upfront fees that can negate the benefit of a low-interest rate. Others might offer flexible repayment options that allow you to make overpayments without penalty. When comparing mortgage deals, it’s essential to consider the total cost over the term of the mortgage, not just the interest rate.
Myth 7: Overpaying Your Mortgage Will Always Result in Early Repayment Charges
Reality: Many homeowners worry that making overpayments on their mortgage will lead to hefty early repayment charges (ERCs). While some mortgage deals do have ERCs, not all of them do. In fact, many lenders allow overpayments of up to 10% of the outstanding balance each year without incurring any penalties.
Overpaying your mortgage can significantly reduce the amount of interest you pay over the term of the loan and help you pay off your mortgage sooner. However, it’s essential to check the terms of your mortgage agreement before making any extra payments to avoid unexpected charges.
Myth 8: You Should Always Choose the Longest Term Possible to Lower Monthly Payments
Reality: While choosing a longer mortgage term can reduce your monthly payments, it also means you’ll be paying more interest over the life of the loan. For example, a 30-year mortgage will have lower monthly payments than a 20-year mortgage, but the total interest paid over 30 years will be significantly higher.
It’s important to find a balance between affordable monthly payments and the total cost of the mortgage. If you can afford higher monthly payments, opting for a shorter term can save you a substantial amount of money in interest over the years.
Myth 9: You Should Wait for House Prices to Fall Before Buying
Reality: Waiting for the ‘perfect’ time to buy a home can be a risky strategy. Predicting the property market is notoriously difficult, and while house prices may fall in the short term, they tend to rise over the long term.
Instead of trying to time the market, focus on your financial readiness and long-term goals. If you’re in a stable position and have found a property that suits your needs, it might be better to buy now rather than wait for a potential drop in prices that may never happen.
Myth 10: Renting is Always Cheaper Than Buying
Reality: It’s a common belief that renting is more affordable than buying a home, but this isn’t always the case. While renting may have lower upfront costs—such as a deposit and possibly no maintenance expenses—buying a home can be more cost-effective in the long run.
When you rent, your monthly payments go towards your landlord’s mortgage, not your own. In contrast, mortgage payments contribute to building equity in a property you own. Over time, as you pay down your mortgage and your home’s value appreciates, you build wealth.
Additionally, monthly mortgage payments can sometimes be comparable to or even lower than rent in the same area. Although buying a home comes with additional costs like stamp duty, legal fees, and maintenance, these expenses are often outweighed by the long-term financial benefits of owning property.
It’s important to do the maths based on your personal financial situation and consider both the short-term and long-term implications of renting versus buying. In many cases, owning a home can provide more stability and financial security compared to renting.
Conclusion
Navigating the mortgage market can be challenging, especially with so many myths and misconceptions floating around. By understanding the reality behind these common myths, you can make more informed decisions and approach the mortgage process with confidence.
Remember, everyone’s situation is unique, and what works for one person may not work for another. Seeking advice from a qualified mortgage broker can help you find the best deal for your circumstances and ensure you’re on the right path to homeownership.
At HLC Mortgages, we are committed to guiding you through every step of the mortgage process. Our team of experts is here to provide personalised advice tailored to your unique circumstances, ensuring you find the best mortgage deal for your needs. Contact us today to start your journey towards homeownership with confidence.