“You’ll Never Get A 95% Mortgage” And Other Home-Buying Myths
Buying a house is one of the most exciting times of your life – whether you’re making that first step on the ladder or climbing to the next rung. However it is also undoubtedly one of the most stressful.
From choosing the perfect home in the right school catchment area to getting the most suitable mortgage, there are numerous decisions to be made. And you can guarantee that everyone you meet will have their own story to tell and advice to give. 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 as you make this important decision.
Here are some of the common myths home-buyers hear and need to get the facts on before taking the plunge.
1. “Get the biggest mortgage you can’t afford”
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 mortgage adviser about realistic borrowing based on your personal circumstances.
2. “You can’t get a 95% mortgage any more”
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 Help to Buy, which aims to help more people become home-owners of new build properties. While this isn’t the traditional 95% mortgage, lenders are still required to find just a 5% deposit, while the government loans you the extra 20%. So you’ll only require a 75% mortgage.
On existing homes there is the option of the Help to Buy mortgage guarantee scheme, which offers lenders the possibility of achieving a high-loan-to-value mortgage of 80-95%. The Government offers lenders the option of purchasing a guarantee on the mortgage loan. The benefit? The potential to purchase a property with a small deposit but the potential for lower, more affordable monthly payments.
3. “The cheapest mortgage is the best option”
Yes, cheap is good, but when selecting a mortgage it is imperative you look at the bigger picture. A smaller monthly payment may look attractive but is it a fixed rate or a tracker mortgage? Tracker mortgages could shoot up quickly if base rate rises while 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?
When it comes to mortgages, these are just a few of the myriad myths out there. The best place to ensure you are getting the full story is from an FCA-registered mortgage adviser.