Misconceptions about Mortgages
Buying a property is one of the biggest – and most expensive – decisions you will make in life, so it is important to ensure that you know fact from fiction when it comes to mortgages, especially when navigating the process for the first time. There is a lot to consider when arranging your first mortgage, as it is only becoming increasingly difficult for first time buyers to get on the property ladder, but there are also elements of the process that are challenging when it comes to buying your second, third or forever home. In this blog, we’ve collated some of the most common misconceptions surrounding mortgages and set them straight, so you can avoid being caught out when applying for your next mortgage.
You need a huge deposit
Whilst it is beneficial to have a larger deposit when buying a property, it is not imperative to have a huge deposit (say, 20 or 30%). In fact, there are a range of options for first time buyers to help make property-buying a little more attainable. The Help to Buy Scheme is a government initiative that makes getting a mortgage slightly easier for first time buyers by lowering the deposit needed to buy a property. Instead of the standard 20%+, first time buyers are able to deposit 5% of the total cost of the home and the government will lend up to 20% of the cost (40% in London). There are some conditions: the property must be a newbuild and the government will hold an equity share corresponding to their percentage loan until the loan is paid off. For those who are not first time buyers, low deposit mortgages are also an option, but you will have less choice in terms of mortgage providers and the interest rate on the mortgage will be higher, meaning you will be paying more on a monthly basis.
You should find the property you want first
Many buyers start the home-buying process by hunting for the home they want to buy first. In reality, this is likely to cause you more issues down the line and result in you losing out on your chosen property. This is because buyers can often overestimate when calculating their own budget, resulting in time being wasted looking at homes that are actually out of their price-range. Consulting an adviser first can help avoid this and ensure that you begin your search with a realistic expectation of what you can afford to buy. You will also want to obtain a mortgage agreement in principle (AIP) before setting off to find that perfect property, as having this provisional agreement should allow the process to run much smoother and faster, reducing the likelihood of you missing out on the purchase and helping to get you those keys sooner.
You can’t get a mortgage if you have just changed jobs
Whilst applying for a mortgage just after starting a new job is not an ideal scenario and can impact the success of applications, it does not make it impossible to obtain a mortgage. The success rate of applications in this situation differs from lender to lender, some will require you to be in a role for six months before applying, whilst some will consider three months sufficient. Being in continuous employment prior to this (ideally at least two to three years) will also benefit you in this scenario, and some lenders will not consider your application without evidence of this. As with obtaining a mortgage with a low deposit, there are lenders out there who will provide mortgages to those who have just moved jobs, you might just need some help finding them; enlisting the help of an advisor can make this process far quicker.
Mortgages are written off upon your death
Some people believe that the money borrowed to take out a mortgage on a property is written off after the borrower has passed away, this is not the case. The lender will still require the loan to be repaid, even if this means forcing the sale of the property to pay off the debt. If those who have inherited the property wish to keep it, it will be their responsibility to take over the monthly mortgage repayments. This does not have to be decided immediately; lenders will often be sympathetic during periods of grieving and understand that there are other administrative and practical arrangements that take priority and so will usually halt repayments for a short time until decisions regarding the property can be made.
The necessary conditions of mortgage applications are not always as black and white as they might seem, meaning that the ‘right’ mortgage looks different for everyone. This can make the process complicated and overwhelming, and seeking advice concerning the application process is one way to reduce the stress and uncertainty that can accompany the undertaking of property-buying. If you would like to arrange a consultation in regards to purchasing property in the UK or abroad, contact us today.
Blacktower Financial Management Limited is not a mortgage provider, but we can offer mortgage solutions to clients via third parties.
This communication is based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.