Mortgage myths - know your facts from fiction

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Mortgage myths crossed out on blackboardDespite massive improvements in both the number and types of mortgage available, myths surrounding what you can and can’t do when applying for a mortgage have been hanging around for years. So here at Homefocus, we thought we’d look into the mortgage myths to remove some of these misconceptions and get you on the right track.

I can’t borrow for longer than 25 years
If you think 25 years is the only term available, think again! Recent research by Santander suggests that today nearly half of borrowers would consider taking out a mortgage over 40 years in order to keep repayments affordable and get onto the property ladder earlier. The longer the term, the more you’ll end up paying in interest, but with rates at all-time lows, buying your own home over a longer-term could help you to make sure that the monthly repayments are affordable whilst still proving cheaper than renting.
I have to borrow over £25k
Talking of lows, legislative changes mean that the minimum you’re allowed to borrow has come down too. Many lenders accept as little as £5,000 to £10,000 for a mortgage application – and a few have no minimum at all! But do watch those setting up costs, which can be the same as those applied to much higher levels of borrowing.
I’m too old to get a mortgage
It’s a well-known fact that we’re all living and working longer. As a result, most lenders are relaxed if the mortgage term goes beyond the current statutory retirement age of 67. Great news for affordable schemes, such as shared ownership, and particularly if you’re in your fifties and renting, but with aspirations of owning your own home –  because you don’t have to take your mortgage over a stupidly short term that hikes up the monthly repayments.  A lot of lenders will only need you to repay your mortgage between the ages of 75 – 85 years as long as you have some form of income (including pensions) to keep it affordable.
I can’t get a mortgage as I’m self-employed
Here in the UK, we’ve always had a reputation for nurturing entrepreneurial spirit, reflected in the fact that our population of self-employed and contractors grows year on year. Lenders have traditionally shied away from these types of clients, considering that they’re “higher risk”. This view is now changing and with it a reduction in the number of years accounts required. In some cases, just one years’ trading accounts is enough to whet the appetite of some lenders and if you’re a contractor on a daily rate this reduces to 6 months in most cases, so if you’re thinking of becoming self-employed you no longer have to wait at least three years before you’re able to buy a home.
I won’t be able to afford a home
Whilst traditional income multipliers have been replaced by more sophisticated affordability calculators it’s still a good rule of thumb to work out how much you can borrow by x your income by between 4.5 and 5, after deducting annual loan commitments. Working out what you can afford to pay out each month is a different thing entirely but also key to making sure that you’re comfortable taking the plunge. Try adding up all of your household expenditure and deducting this from your household take-home pay. Remember to factor a bit extra for stuff like buildings insurance which your lender will insist upon. Also, contents cover and life cover, neither of which is compulsory, these days, but still very sensible to have in order to cover the “what ifs” in life.



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by Helen Pierson, Head of Business Development at the Mortgage Bureau