Think you can only get a mortgage from your existing bank or lender? Or maybe you are put off becoming a homeowner altogether because you have debt?
Think again, is the message from an online mortgage broker, which is lifting the lid on a range of common mortgage misconceptions in a bid to help borrowers understand more about their options and prospects for taking out a home loan.
Dilpreet Bhagrath, who is a mortgage expert at Trussle, explained how having an overdraft, or bad credit may not necessarily exempt you from getting onto the property ladder.
What’s more, she also explains why you don’t have to be loyal to your current account provider when looking for the best deal and discusses how self-employed borrowers are beginning to be taken more seriously by lenders.
Here she helps separate the fact from fiction when it comes to several common mortgage myths.
Myth: You can’t get a mortgage if you have an overdraft
Truth: It is in fact completely possible to get a mortgage if you use an arranged overdraft. Of course, the fact you are using this facility will be taken into account during the application process and a lender will look at how you manage the overdraft – and other financial commitments – when assessing your eligibility.
Bhagrath explained: “When lenders assess your monthly income and outgoings, any money used to pay off the overdraft will be accounted for in affordability assessments.
She added: “[Lenders’] main priority is to ensure that you’re not financially overstretched and can comfortably afford your monthly mortgage repayments.”
Bhagrath issued a word of warning, that if you take out a personal loan, car finance or any kind of new credit facility in the run-up to the mortgage application it could impact how much you can borrow from the lender.
Myth: You can’t get a mortgage if you have bad credit
Truth: This is not always the case, says Bhagrath. Some credit issues carry less weight than others and the length of time which has passed between the incident occurring will also be taken into account when lenders make their decision.
It’s mainly specialist lenders and brokers who offer options for people with history of poor credit, but many high street lenders are beginning to be more opening minded towards customers with bad credit, said Bhagrath.
She added: “It’s worth being aware that the mortgage deals available to those with bad credit sometimes have higher rates and fees and may require a larger deposit.
“It’s important to speak to a mortgage broker to discuss the options available to you based on your own personal circumstances.”
Myth: Self-employed? You won’t get a mortgage
Truth: This is wrong. There are 4.85 million self-employed in the UK and rising, and Bhagrath admits the mortgage industry has not kept pace with this growing group of borrowers.
As such many do find themselves being overlooked.
However, while the process of applying may seem trickier for those who are self-employed, they can still successfully apply for a mortgage.
Make sure you’re prepared with at least two to three years of proof of income as this is the amount some lenders will require,” said Bhagrath.
“Many people seek advice from an accountant when considering self-employment, but it’s also worth speaking to a mortgage broker about your current mortgage or future home ownership plans.
“This will ensure you’re aware how to structure your accounts for both tax purposes and securing a mortgage.
“As always, it’s important to consider any personal and future circumstances when securing a mortgage and seek professional advice to ensure you’re aware of the options.”
Myth: You can only get a mortgage from your existing bank
Truth: Actually, sticking with your current bank could end in you paying a lot more money for your mortgage.
Trussle’s research uncovered evidence nearly half of borrowers found the mortgage process stressful and therefore it was no surprise they were reluctant to remortgage.
But this can cost in the long run, said Bhagrath. “Give yourself three to six months before your deal ends to shop around, so that you find the best possible deal,” she said.
“Don’t worry if this seems daunting. Trussle has introduced a free mortgage monitoring service that will alert borrowers when a better deal comes onto the market.”
Myth: You must get a new mortgage if you move home
Truth: In fact, you may be able to take your mortgage with you through a process called ‘porting’. The lender will want to value the new property to check they are happy to lend on this home, plus if it’s more expensive you will need to borrow more. To allow this ‘top up’ the lender will need to carry out affordability checks and look at your income and outgoings.
However, if you are in the middle of a good deal and want to remain with it when you move house, this is an option worth exploring.
Bhagrath added: “Remember that the ‘top-up’ will be based on the mortgage deals available from the lender at the time, not on the same interest rate as your current deal.”
