Mortgages can be confusing, and with so many different types to choose from and rates changing frequently, it’s not surprising that there are still plenty of misconceptions about how they work.
Many mortgage misunderstandings come down to the fear that lenders reject mortgage applications for various reasons, and there aren’t any alternatives. In reality, the mortgage market is vast and there are plenty of brokers and specialist lenders who can often help you to secure a mortgage, even if your circumstances are out of the ordinary.
In this article, we dispel some common mortgage myths and suggest where to go for further help.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Contents
- You can’t get a mortgage if you’re over 50
- You can’t move house if you’re still paying off a mortgage
- You should always get a mortgage from your bank
- You need a perfect credit score to apply for a mortgage
- Renting is cheaper than making mortgage repayments
- You can’t get a mortgage if you’re self-employed
- You need to wait until you’ve found a property to look for a mortgage
1. You can’t get a mortgage if you’re over 50
It used to be that getting accepted for a mortgage became much trickier once you reached the age of 50 but, fortunately, this is no longer the case, with plenty of lenders offering a much wider range of options for borrowers in their 50s and 60s. Read more about getting a mortgage in your 50s or in your 60s, as well as some alternative options, in our articles Mortgages for over 50s: what you need to know and Mortgages for over 60s: what you need to know.
The growing number of deals available to borrowers over 50 is great news if you’re coming to the end of your mortgage deal. You shouldn’t have to roll onto your mortgage lender’s costly standard variable rate (SVR), because there may well be better deals available to you. Read more in our article Should I fix my mortgage now or wait?
As well as conventional mortgages, there are also several types of specialist mortgage products aimed at borrowers in their 50s and beyond.
For example, retirement-interest only (RIO) mortgages allow you to take out a mortgage and only pay back interest each month, with the capital being repaid after you die. Find out more in our article How retirement interest-only mortgages work.
Alternatively, equity release plans enable you to unlock some of the wealth tied up in your property as a tax-free lump sum. Unlike a RIO mortgage you don’t have to make any interest payments (although many plans allow you to if you want to), and the interest only has to be repaid along with the capital you owe when you die or move into long-term care and the property is sold. Find out more in our article Equity release – what is it and how does it work?
Bear in mind that equity release can be an expensive option as interest rolls up over time and is compounded (which means interest is charged on top of interest), so it’s essential to seek professional financial advice if you’re considering taking this route.
2. You can’t move house if you’re still paying off a mortgage
While getting out a mortgage on a property is undoubtedly a big financial commitment, it’s not the case that it ties you to that property forever, or even for your mortgage term. You’re able to move house even if you haven’t repaid your current mortgage in full.
The two most common options if you’re moving home and you have an existing mortgage are to ‘port’ your current mortgage to your new home, which some lenders will let you do, or to remortgage altogether.
Porting your mortgage means you will effectively have to go through the application process again. You may also have to increase the size of the mortgage or take out an additional mortgage if the new property is more expensive than your existing home. You can find out more in our guide Moving house with a mortgage – what you need to know.
Remortgaging altogether will allow you to search the market for a better deal, but it may also mean having to pay an early repayment charge (ERC) and exit fee to repay your current mortgage if you’re leaving during the term of a particular deal. The full cost will depend on how much you have paid off your mortgage already and whether you’re on your lender’s SVR, as well as arrangement fees for the new deal. Read more in our article Mortgage fees and costs explained.
3. You should always get a mortgage from your bank
There is absolutely no obligation to get a mortgage from the same bank or building society that you use for your current account or savings, and you could well miss out on getting a much better deal on the open market. Just because you’re happy with the banking services your bank provides doesn’t mean they’ll automatically offer the best mortgage deal for you.
However, some lenders offer exclusive mortgage deals to customers who’ve banked with them for a while, so if your provider can offer a good deal compared to the competition, then go for it. If in doubt, it’s worth speaking to a broker first and seeing what your options are, so you can compare these before signing up.
4. You need a perfect credit score to apply for a mortgage
It’s undoubtedly true that your credit score – which reflects how well you’ve managed previous debts – affects your mortgage application, and a spotless credit record will bolster your chances of being accepted for the deal you want.
However, having some missed repayments or marks on your record doesn’t have to spell doom for your mortgage dreams. Even if your credit score is on the lower side, there may be lenders who will make you an offer, though this may be at a higher interest rate than if your record had been squeaky clean. Working with an experienced mortgage advisor is a great way to understand what your options are in this scenario.
However, it’s sensible to take steps to improve your credit score before you apply in order to put yourself in the best position possible. Our article Seven steps to improve your credit score has a few ideas that you might find useful.
5. Renting is cheaper than making mortgage repayments
While the exact difference has fluctuated over the years, one thing has remained fairly constant over the past decade – mortgage repayments are, on average, cheaper than rental payments in the UK.
Of course, there’s a whole host of factors at play here. For example, while getting a mortgage saves money in the long run, the cost of putting down an upfront deposit is an expensive barrier. Then, once you own the property, any maintenance and repair costs will fall on you rather than a landlord. But as far as monthly outgoings go, the numbers generally still stack up in the favour of homeowners.
6. You can’t get a mortgage if you’re self-employed
Many self-employed people worry that they won’t be able to get a mortgage because they will fail a lender’s income checks. This might be because they don’t get a regular salary each month, or because they get their income from multiple sources.
It’s true that these things can sometimes mean you have to jump through additional hoops to get a mortgage, especially if you have only been self-employed for a short time, but they are by no means a dealbreaker. If you can prove that you have a stable enough income to afford the repayments and work with an advisor who knows which lenders will be more open to your application, you shouldn’t have a problem getting a mortgage. Find out more in our guide Can I get a mortgage if I’m self-employed?
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
7. You need to wait until you’ve found a property to look for a mortgage
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
However, you can’t apply for an official mortgage offer until you’ve chosen a particular property – after all, your lender will need to perform a valuation to work out how much they’re willing to lend you. However, if you haven’t decided on a home yet, this doesn’t mean that you can’t start looking at the market and speaking to a broker about your mortgage options.
One thing you could consider at this stage is getting an Agreement in Principle (AiP). This is a certificate from a lender that provides an estimate of how much you could expect to borrow based on your income and the deposit you can provide. Find out more in our article What is a mortgage agreement in principle? An AiP isn’t legally binding – you don’t have to go with that lender when you apply for an actual mortgage, and they aren’t obliged to accept you if you do – but it can be a really useful way of finding out how much you might be able to borrow, and of demonstrating to sellers that you’re serious about buying.
Read more about the mortgage application process in our article How to apply for a mortgage – everything you need to know.
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