According to the 10th annual homeowner survey from the HomeOwners Alliance, which surveyed around 2,000 people, approximately 65% of those surveyed believed if you had a bad credit score, you would be turned down for a mortgage.
The HomeOwners Alliance said a credit score is one factor that a lender would consider and a broker can help find lenders that will suit a customer’s needs and profile.
Around 62% of aspiring first-time buyers believed that you needed a minimum 10% deposit.
The report noted that there are a growing number of lower-deposit and no-deposit deals, with Moneyfacts reporting that the number of low-deposit mortgages is at its highest level for almost 18 years.
The HomeOwners Alliance did say that a larger deposit can have better rates, but there is not a “fixed threshold” for a deposit.
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Almost half of aspiring homeowners added that the maximum they can borrow is 4-5 times income, despite changes in regulation in the past year leading many lenders to increase their loan-to-income (LTI) multiples.
The report said many buyers could consequently be “underestimating their borrowing capacity” before they go to an adviser.
Nearly half of advisers said they were primarily focused on headline rates when comparing mortgage products. However, the overall cost can vary once arrangement fees and other charges are taken into account, the report said.
Around four in 10 first-time buyers added that the best route was to go to their existing bank for a mortgage, which is nearly double that for buyers overall.
A quarter of prospective first-time buyers also believed they have to secure a property before exploring their mortgage options, compared to 16% overall.
This can “delay preparation and weaken their position” when they are ready to make an offer, the firm warned.
Paula Higgins, chief executive of the HomeOwners Alliance, said: “Too many first-time buyers are putting themselves out of the running before they have even had a proper conversation with mortgage experts about what might be possible. Misunderstandings about deposits, borrowing limits and how mortgages work are denting confidence at the very first hurdle.
“At the same time, some who do press ahead may be focusing on the wrong things, such as headline rates or sticking with their existing bank, rather than looking at the overall cost and the full range of options available. Getting clear, independent advice early on can make a real difference.”
David Hollingworth, associate director at L&C Mortgages, added: “The mortgage market changes quickly and often, so it’s understandable that many would-be buyers can find it hard to know what is and isn’t possible. There’s been great strides made in the last 12 months to address some of the biggest challenges that first-time buyers face in saving for a deposit and being able to borrow enough to meet high prices.
“That product and criteria innovation is helping to change what could be possible. It’s therefore worth seeking advice to cut through the dizzying array of options to better understand if there are solutions that could put homeownership within reach.”
