Busting the mortgage myths that hold many buyers back
The latest research from Alexander Hall has found that the majority of aspiring homebuyers are being held back from applying for a mortgage due to common misconceptions about affordability, deposits and eligibility.
The survey of aspirational homebuyers yet to enquire about a mortgage – commissioned by Alexander Hall – found that many could be in a position to buy without even realising it.
When asked why they had yet to dip a toe into the mortgage market, the number one factor was a belief that their deposit simply is not sufficient.
Other common barriers included fears of being declined, doubts over earning enough to borrow the amount required, concerns about affording repayments, and embarrassment at potentially being rejected or sharing financial history.
Self-employment status, existing property ownership, or adverse credit also featured as factors.
These findings highlight that a combination of perceived financial barriers and personal apprehension is holding many buyers back.
The survey also revealed that a significant proportion of aspiring buyers may not realise they are already in a position to secure a mortgage. In many cases, a combination of recent market changes, including the relaxation of loan to income multiples – the sum you can borrow based on your income – and the increased availability of low deposit products, means buyers’ perceived barriers may be outdated or overstated.
Alexander Hall has taken a look at six of the most common mortgage myths and how they might not be the obstacle that many believe them to be.
The six biggest mortgage myths
You need a large deposit to get a mortgage
One common misconception is that you need at least 10% of a property’s value to get a mortgage. Whilst a third of respondents (33%) were aware that 5% mortgage deposit products exist, 67% either thought a higher deposit was required or were unsure as to what percentage they needed.
Low deposits are often a real issue for buyers, especially those renting, but UK minimum deposits generally start at 5% with options now available at zero deposit or 1%. Although larger deposits typically mean lower interest rates, recent market changes are encouraging the availability of low deposit options, alongside higher income multiples, which vastly improves the chances of obtaining a mortgage.
You need to provide months of bank statements or spending history
Lenders typically request as little as one month of bank statements to assess affordability and spending patterns. This is often sufficient even for more complex applications, helping to simplify the process for first-time buyers and those looking to move quickly.
But when asked how many months they might need to provide, 57% of those surveyed by Alexander Hall either answered incorrectly or were unsure.
Self-employed buyers need 3 years of accounts to be accepted
Similarly, 33% of respondents believed that you need more than three years of self-employed accounts in order to apply for a mortgage, whilst 55% were again unsure.
Lenders often require just two years of certified accounts or HMRC tax calculations, though there are options for lenders who accept just one year. Income multiples for self-employed applicants can be slightly different than for employed borrowers. For example, contractors could look to use an annualisation of their day rate or limited company directors may be assessed on salary plus net profits or dividends.
Loan to income multiple restrictions – The sum you can borrow for a mortgage based on your earnings
The survey by Alexander Hall also found that a third of respondents (33%) thought they could only borrow up to three times their annual income, while 22% were unsure.
Most lenders now offer 4.75-5x income multiples as standard, with higher multiples available for applicants with strong earnings and low outgoings. Relaxation of loan to income multiples in recent years has widened access to finance, meaning many aspirational buyers may be able to borrow more than they realise. Most recently we have seen a number of high street lenders improve both their income multiples offered, especially for first time buyers to allow 5.5x loan to income, and also improved the affordability stress test when assessing outgoings. This makes it easier to reach these headline multiples.
By speaking to an independent mortgage adviser, they can also access intermediary only lenders in the market who have more flexible policies. An example of this is April Mortgages who are offering 7x loan to income for certain buyer types and, on a separate product offering 100% loan to value options (zero deposit).
Alexander Hall’s own data shows that, although higher multiples are available, the average lending multiple for first-time buyers currently sits at 4.08 times income, up from 3.86 last year, whilst existing homeowners are borrowing typically 3.74 times income.
Owning a property prevents you from buying with a partner
When asked if existing homeowners could still buy with a partner, 44% either thought it wasn’t possible or were unsure.
Challenges can exist, such as managing an existing property or needing a buy-to-let adjustment for additional properties, but joint applications typically improve borrowing multiples based on combined incomes, boosting affordability and enabling buyers to move forward even if they already own a home. There are also options available such as joint borrower, sole proprietor set up to help with tax planning.
Poor credit history prevents you from being approved for a mortgage
Only 36% of respondents recognised that specialist lenders may accept applicants with adverse credit. The remaining 64% either thought they wouldn’t be accepted or were unsure.
While poor credit history, such as recent CCJs, defaults, IVAs, or bankruptcy, can limit your mortgage eligibility, you can still be considered if the full context is provided. Larger deposits can help mitigate risk, and ensuring credit reports are accurate is key to avoiding unnecessary barriers.
Stephanie Daley, Director of Partnerships at Alexander Hall, commented:
“Mortgages can be complicated and daunting, and it’s completely understandable that many aspirational homebuyers may be put off from enquiring and don’t realise that they could already be in a position to buy.
This is largely down to the fact that a number of mortgage market myths exist, but we’ve seen notable improvements across the mortgage landscape of late that are helping to put many of these myths to bed.
The relaxation of loan to income multiples and greater availability of low deposit mortgage products, in particular, are helping to vastly improve the chances of getting a mortgage, even for first-time buyers or those who may have previously felt their financial position was a barrier.
The best place to start is with a great mortgage adviser. They can offer professional, impartial advice to help ascertain your potential position within the market and act as a link between you and multiple lenders so that you have a guiding hand and the process doesn’t feel so overwhelming.”
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