Mortgage Myths 1.0
Posted on 23rd February 2022 at 16:14
As lending criteria and options change over the years, more and more mortgage myths begin to surface as old advice no longer fits today’s criteria. So, we wanted to put together a list of the most common mortgage myths to help set you straight on what’s possible and what’s not in the world off mortgages.
“You have to use the estate agents mortgage adviser and solicitor to make the process smoother or to secure the deal”
You are free to use whichever mortgage adviser or solicitor you wish. Using their chosen solicitor doesn’t make things any easier other than the estate agent receives a slice of the commission for referring you on. It is in fact illegal to force someone to use a particular company or to deny them the sale if they don’t use their referral. All solicitors and advisers can complete the work you need on the property you buy, so choose you feel most comfortable with.
“Don’t I need 3 months of payslips before I can apply for a mortgage?”
Most lenders will let you apply for a mortgage as soon as you have a copy of your new employment contract and your 1st payslip. Some lenders will even accept that income before you receive your 1st payslip as long as you have your contract as evidence.
“You need a perfect credit score to get a mortgage”
You don’t need a perfect credit score to secure a mortgage. As long as your credit report is clear of any adverse credit e.g. CCJs or defaults, most high street lenders will accept you. Your score may be low because you’ve never used credit before, this isn’t the same as having a bad credit score. Some specialist lenders will accept applicants with CCJS, defaults and even bankruptcies in their history.
This one comes from a lot of parents who bought property ‘Pre 2008 financial crash’. Before the financial crash of 2008 home buyers could borrow 100% of the property price and even borrow 110% of the property value so that you could use that extra borrowing to refurbish your new property. But these types of mortgages put you into negative equity from day 1 which meant you were stuck in that property and unable to move until equity built. These haven’t been available since 2008.
“I’m too old to get a mortgage”
Most lenders want to see that your mortgage is paid off before you turn 70 years old. This is because they believe this is the maximum retirement age. Some lenders however will allow you to take a mortgage longer than this depending on your occupation and your pension income. If you have a job that would let you work beyond age 70 e.g., you’re a director of your own company, or you have sufficient pension income you can use that income to support your mortgage beyond retirement.
“The lowest interest rate is always the best option”
The lowest rate isn’t always the best option available. Not all fixed rate mortgages run for as long as you think. What can be advertised as a 2-year fixed rate mortgage can actually run for 26-28 months rather than 24. Which means you are making an additional 2-4 payments. Also, some mortgage products have fees included which aren’t obvious e.g., arrangement fees and valuation fees. An independent adviser will help find you the best option available for you as they’ll factor in all costs and find the mortgage that suits your needs and the one that you fit the lenders criteria.
“Don’t I need a huge deposit to buy a home?”
As of today (February 2022) you can buy a residential property with as little as 5%. Obviously, this is reliant on meeting lender criteria. You may need a larger deposit when using a specialist lender due to adverse credit. With regards to Buy to Let property you can invest with as little as a 20% deposit.
“Stretch yourself to the biggest mortgage you can”
Your mortgage needs to be right for you. It needs to be affordable and for the property that suits your needs. For example, if you can afford a 6-bedroom £1,000,000 mansion but you live alone, then why spend all that money on a mortgage? Although lenders believe you can afford a £1000 a month mortgage on paper but you don’t feel comfortable spending that amount of money each month you shouldn’t do it. You want to be able to comfortably afford your mortgage, pay it off in a time frame that is as quick as possible but also leave you enough money to enjoy other things in life and have money left over for emergencies should they arise.
“Getting a mortgage if you’re self-employed is too hard”
For self employed people, getting a mortgage is the same process as for employed people. The only difference since COVID is that lenders often want more documents to support your application. This could be business or company bank statements to show recent trading or company accounts to support your personal tax returns. The benefit of being self employed as opposed to employed when it comes to a mortgage application is that you can use your LTD companies net profit instead of your personal drawings, which will often give you a larger figure as not all directs take 100% of the profit form their company. If your company has retained profits, lenders will take a view on this also.
“Your bank will give you the best rate possible”
Just because you have a current account with a particular bank or lender, doesn’t mean that they can provide you with a preferential or ‘VIP’ rate. Lenders have a limited number of mortgage products available depending on your loan to value and mortgage type. They only have these set mortgages to offer to people regardless of whether they are new customers or existing. The only time you may receive a preferential rate is once you have a mortgage with a particular bank or lender and they offer you a product transfer rate.
Tagged as: bank, bank rate, best rate, big mortgage, deposit, first time buyer, first time buyer deposit, house deposit, interest rate, low interest rate, mortgage, mortgage adviser, mortgage age, myth, myths, protection, self employed, self employed mortgage
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