Myths of the Mortgage Market

Applying for a mortgage can be a daunting prospect for some. But how many of your anxieties are fuelled by misconceptions and falsehoods?

Our mortgage advisers often hear from people with concerns that are totally unfounded; they’re simply not based on truths.

We thought we’d ask our expert, Darryl, to round up a few common myths of the mortgage market and demystify them one by one, so you can have confidence in your mortgage application.

Every mortgage is the same 

On the face of it, all mortgages are the same as they’re all loans you can use to either buy or refinance a property, so you could lose your home if you don’t keep up with the repayments.

But that’s a very simplistic summary of what mortgages are, as there are many different types on offer. For example, a tracker mortgage changes in line with interest rates set by the Bank of England, while a fixed rate mortgage offers set monthly payments for a specific period.

Or you could be on a standard variable rate mortgage, which can change in line with market conditions, or an interest-only mortgage, where your monthly payments only cover the interest on the sum you borrowed.

Since there are so many different types of mortgage on offer, it’s worth getting financial advice from an expert. This way you can find the home loan that best suits you and your circumstances.

Your credit score must be perfect

Lenders want to be happy anyone taking out a loan can repay it, so will look at your credit rating.

But missing the odd credit card payment in the past, doesn’t mean your mortgage application will be rejected automatically.

Although you might not get as favourable a rate as someone with a perfect credit score, there’s every chance you’ll still be offered a mortgage that suits you.

Mortgage brokers don’t offer the same financial protection as banks 

Not true. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) just like banks. Rest assured, brokers have the expertise to advise you, and you can go through a proper complaints process if you’re unhappy with the service they offer.

Mortgage brokers are a more costly option

Another myth. Mortgage brokers have access to a wider selection of options than banks, who are limited only to the specific mortgage products they offer.

So there’s every chance you could get a better deal by working with an independent mortgage adviser.

A personal loan can help if you’re struggling to get a deposit

If you’re struggling to save up for a deposit, it could be tempting to borrow money. But that doesn’t always play well with mortgage lenders, as you’ll be paying off two big loans and they might legitimately wonder if you’re able to meet your financial obligations.

We should stress, however, this doesn’t apply to gifts. For instance, if your parents have given you money to put towards a deposit, as you’re not always expected to pay that back. Nevertheless, you should let your lender know the source of this money, as it’s always good to be open and transparent.

You can’t change mortgage lenders

You can. Even if you’ve taken out a mortgage that lasts for decades, you’re not obliged to stick with the same lender. You can remortgage your property so you can pay off the original lender and move to a new company and potentially take advantage of more favourable rates. It’s worth noting, if you have a product rate that lasts for a certain length of time, there may be early repayment charges.

You can only get a mortgage if you can pay a big deposit

While lenders will ask for a deposit when you buy a property, some may ask for just a small percentage of the purchase price, sometimes as little as 5%.

Yes, paying a larger deposit would mean you don’t need to borrow as much money, and you could be offered a lower rate of interest. But if you can’t pay a big deposit, it doesn’t mean your mortgage application will be rejected.

Self-employed people can’t get mortgages 

Not true. While self-employed people don’t have access to documents such as payslips to prove their income, they can still provide evidence of their income to support a mortgage application.

A self-employed person can access alternative types of documents to prove their income. For example:

• If they have an accountant, lenders may consider asking for an accountants’ certificate to show the income and trading figures for their business.
• Alternatively, they could produce a form called an SA302, a summary of the income you’ve reported to HMRC after you’ve submitted your self-assessment tax return.

So while the process might be different than it would be if you were in regular employment, it’s not impossible.

Whatever your circumstances, if you have any questions regarding your current or future mortgage, please contact our experts. We’re always happy to answer your questions.