Taking your first steps towards a mortgage – and getting a foot on the property ladder – can be a really exciting time. But it’s also important you’re armed with information – and the right information at that – before you start your journey to homeownership.
Splitting the fact from fiction isn’t all that easy, particularly when some of the mortgage myths out there have been doing the rounds for many years. To make sure you’re dealing in truths, read on to hear the reality behind a handful of the incorrect mortgage-related statements we hear most often.
Myth: Young people can’t get on the ladder at all.
The truth: Many people in their 20s and 30s think of homeownership as a distant prospect. But this is far from the truth. While our research shows that young people see the deposit as the biggest obstacle to getting on the ladder, it needn’t be such a daunting prospect. Mortgage lenders now offer loans on as much as 95% of a property’s value, meaning you’d only need to raise 5% as your deposit, not to mention the assistance of the government Help to Buy scheme.
Myth: You can only get a mortgage from the company you bank with.
The truth: Lots of people believe that their existing bank is the one and only place to go when it’s time to think about a mortgage. That might be because our own banks will have sent lots of emails and letters advertising what they can offer, alongside their preferential rates.
But it does make sound sense to look around a little. Not only might other banks be able to match or better those offers, but there are plenty of non-banking organisations that can provide you with a mortgage, including Post Office. To get an idea of what we could lend you, use our online mortgage calculator.
Myth: You need to have a perfect credit rating to get a mortgage.
The truth: It’s certainly true that you’ll struggle to get a mortgage with a bad credit history, but by no means will your credit score need to be perfect.
What’s more, there’s a big difference between having a bad credit history and having no credit history. If you’d like more advice on how to get a good credit score, speak to a financial advisor.
Myth: There’s no point looking into mortgages until you’ve found the home you want to buy.
The truth: This is a mistake for two reasons. Firstly, by meeting with an advisor beforehand, you’ll be able to get a much more realistic picture of what your budget should look like.
Secondly, you can get yourself a mortgage Agreement in Principle (AIP). Though these are time-limited, they act as a ‘provisional’ agreement between you and a lender, and mean things can move much more quickly should you have an offer accepted on a house you love.
Myth: It costs more to pay a mortgage than it does to rent.
The truth: In many cases and areas, what you repay on your mortgage each month may be lower than local rental values. It’s also important to consider that with your mortgage repayments, you’re adding to the equity you own in the property each time, whereas you won’t be building any equity as a renter.
Myth: The mortgage with the lowest interest rate is the best deal.
The truth: It’s certainly right to think of the interest rate as how much your mortgage actually ‘costs’, with this being what you pay to have your loan, on top of the equity you’re accruing in your property. But that’s not to say you should assume that the lowest interest rate means the cheapest mortgage.
Whether the arrangement is a tracker mortgage or a fixed-rate mortgage will determine whether that low rate could change at any time, while the rate you’re quoted initially may be time-limited, after which you’ll be put on the lender’s standard variable rate. What’s more, some lenders may charge additional fees, while others offer cashback in return for taking out the loan with them.
Myth: If you can’t find the right home within your budget, you’ll need to keep saving up your deposit.
The truth: For first-time buyers, deciding to use the government’s Help to Buy scheme could mean you’ll get an equity loan covering as much as 40% of the cost on a new-build home, without it costing you a penny more upfront.
Another option could be something like a Post Office Family Link™ mortgage, (Provided by Bank of Ireland UK), where close family members who own their home outright can help fund your deposit by using the value of their own home. This could make many more properties a realistic prospect, without having to grow your own savings. Whatever option you choose, it’s vital you’re sure you can keep up with your mortgage repayments, as failing to do so could result in your home being repossessed.
Myth: Lenders will only agree to mortgages with people in full-time work.
The truth: It’s a common misconception that lenders see anyone not in full-time work as a risk. With the rise in freelance, flexible and contract working in the UK, some lenders today may take a much more individual approach when it comes to assessing people’s employment situation. There’s every chance they’ll lend to you provided your income is stable and sufficient.
If you’d like to keep myth busting, and learn more about what comes after you get a mortgage agreed, read our guide to the house buying process.
If you’re only just starting out on your journey to homeownership, a Post Office mortgage could help you get well on your way. To find out how much we may be able to lend to you, have a look at our online mortgage calculator today.