Research from the Building Societies Association (BSA) found almost a third (31%) did not understand whether there is a difference between a standard 95% mortgage and an equivalent loan made using the Help to Buy scheme.
A common misconception was that buyers are more likely to be approved for a Help to Buy mortgage than a typical home loan, research found.
Almost one-in-five (18%) first-time buyers thought using the scheme would allow them to borrow more than they could under normal circumstances while 12% of home movers believed taking a mortgage out under the scheme would lower their monthly repayments.
Other common misunderstandings about the scheme are that first-time buyers think the scheme would protect them if they could no longer keep up with monthly payments and the Help to Buy scheme would protect buyers from house price falls.
Paul Broadhead, head of mortgage policy at the BSA, said lenders offering mortgages under the scheme had to be clearer with customers.
“It is unsurprising that some consumers are finding the Help to Buy mortgage guarantee scheme difficult to get their heads round,” he said. “The situation has been complicated by the launch of two very different schemes both called Help to Buy.
“It is essential that providers offering loans under the scheme leave applicants in no doubt about the terms of their mortgage loan. I am particularly concerned that a reasonable minority of active first-time buyers believe that they can borrow more than normal and that they are in some way protected – neither assumption is true.
“In fact a 95% mortgage through Help to Buy mortgage guarantee is exactly the same as a standard 95% mortgage. It is vital that these myths are dispelled at application to prevent the possibility of consumers misunderstanding their mortgage loan and later feeling misled.”
Meanwhile, the government has rebuffed claims Help to Buy will not boost house building after revealing more than 900 builders are planning to offer new build properties under the first phase of the scheme, the equity loan.
Housing minister Kris Hopkins visited a building site in Yorkshire to make the announcement and said more than 80% of builders involved in the scheme were small firms building 40 homes or fewer.
“The Help to Buy equity loan scheme is, not just helping thousands of buyers onto the property ladder but is making an important contribution to people’s lives creating jobs, boosting local business and stimulating the economy,” he said.
However, in a speech to the CBI conference earlier today Labour’s Ed Balls said the government’s focus on housing would lead to an unbalanced economic recovery.