New research out this week from The Mortgage Lender shone a light on some of the most frequent misunderstandings about buying your first home. For example, significant numbers had no idea they may need to pay stamp duty on the purchase, and little awareness of other costs like valuation and survey fees.
Brokers told Mortgage Solutions that it’s not just first-time buyers who are often ignorant of the processes involved with purchasing a home, with misconceptions including what impacts their borrowing capacity, when they should put their property on the market, and even what brokers actually do.
Getting borrowers ‘mortgage ready’ can take years
Rita Kohli, managing director of The Mortgage Stop, said that it can be necessary to work with first-time buyers over months ‒ and in some cases years ‒ to get the mortgage ready.
She explained: “There are quite a few things that many first-time buyers just aren’t aware of. It’s not just how stamp duty works but how spending habits, credit cards and things like interest-free credit can affect their borrowing capacity. Even things like salary sacrifice and how this affects income affordability assessment.”
Stephen Perkins, managing director of Yellow Brick Mortgages, noted that a frequent misconception among first-time buyers is that their borrowing will be assessed based on their ability to afford the mortgage payment.
He continued: “The most common misconception among all borrowers is that it is difficult to get a mortgage as someone self-employed. Which aside from the documentation needed, is no more complicated than someone who is employed.”
It’s not just first-time buyers
Lewis Shaw, founder of Shaw Financial Services, said that misunderstandings around the process of buying a home are not limited to just first-time buyers, and argued this was not surprising as the process is complicated.
He continued: “One of the biggest misconceptions is that some second-steppers think they only put their house on the market once they’ve found something to buy. You have to explain that they need to list their house before they start looking; otherwise, they’re not a proceedable buyer.”
Kohli agreed that it’s not just first-time buyers who have misconceptions, noting that there are “plenty of people” who listen to “social media gurus that give ideas that just don’t work in reality”.
She added: “Link this with a distinct lack of basic financial education that is given to people, and it isn’t surprising that they don’t know the complexities of the process of buying a home or even the costs that are involved.”
This was echoed by Michelle Lawson, director of Lawson Financial, who noted the “vast majority” of people have little or very limited knowledge.
“Surprisingly, a significant number have never checked their credit files or know they exist. Also, many buyers forget that agents are acting for the vendor only and give far too much information away which can end up detrimental to their cause,” she added.
Porting is easy, right?
Rob Gill, managing director of Altura Mortgage Finance, said that it’s common for brokers to think that porting or transferring their mortgage from one property to another will be easy.
“Many borrowers assume that if they move house and don’t increase the loan amount they can automatically move their mortgage as part of the new purchase. They don’t realise any such port is assessed as a brand new mortgage application and they could be declined,” he added.
What do brokers do?
According to Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, the most fundamental misconception is often around what intermediaries actually do.
“Many think our job is to find them the cheapest interest rate, which it isn’t,” he continued, noting that while it’s important to identify the best value deal, that often is not the lowest interest rate option “due to other factors like affordability, fees or cashback.”
