mlm-editorial, 29 months ago12 min read
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.
Now, some information is helpful – the sort you receive from expert professionals – but other advice, though it might seem legit, is not always best heeded.
Here are some of the common myths home-buyers hear and need to get the facts on before taking the plunge.
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 local mortgage advisor about realistic borrowing based on your personal circumstances.
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 First Homes scheme, where first-time buyers can purchase a property that’s 30-50% cheaper than its market value price. This scheme means that while buyers will still need a mortgage that covers at least half of the property price, the mortgage requirement will be lower because of the discount.
There is also the option of the Help to Buy equity loan where first-time buyers can take out a loan of up to 20% of the value of a new-build property, which will be interest-free for the first five years. Buyers will need to pay a minimum 5% deposit, they’ll receive a 20% equity loan from the Government, and then they must take out a mortgage to make up the extra cost. The benefit? The Government’s equity loan contribution is essentially topping up the buyer’s deposit, reducing the amount that they’ll need to borrow for their mortgage.
For more information on 96% mortgages, take a look at our guide to them here.
Yes, cheap is good, but when choosing a mortgage, it is imperative you look at the bigger picture. A smaller monthly payment may seem attractive, but is it a fixed-rate or a tracker mortgage? Tracker mortgages could shoot up quickly if the base rate rises, whereas 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?
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 of proving that you can make repayments on your mortgage could be more difficult.
Self-employed people will need to produce an SA302 form 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.
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.
This is false. Any monthly outgoings will be considered in your application 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.
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, down the line, it could 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.
For a full list of tips on how to reach your target deposit amount, check out our guide on how to save for a mortgage.
Once you have a mortgage agreement in principle (AIP) – a quote from your lender that indicates how much you can borrow from them – 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 as less than your full mortgage amount. This will leave room in your spending for all those fixtures and fittings that you really want.
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.
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 — make sure to place your offer before this or you could miss out.
If the property is labelled with a ‘guide price’, your solicitor should advise you on a sensible price to pay. The vendor will either accept your offer or set a closing date to find their best offer.
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. This is because it can be seen to start to lose value and the cost of repair will rise drastically. 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.
Buying a home can be daunting, which is why it’s important to ensure that you are equipped with the best advice.
Use MyLocalMortgage to find a licensed, experienced mortgage broker near you.