Many tenants would like to buy a home but postpone the mortgage conversation because they assume they will not qualify.
They may believe their deposit is too small, their income is insufficient, self-employment makes borrowing impossible or an old credit problem means every lender will say no.
Sometimes those concerns are justified. However, mortgage lenders do not all assess applicants in the same way, and an assumption made without checking can keep a potential buyer renting for longer than necessary.
Here are seven common first-time buyer myths that deserve closer examination.
Myth 1: You need an enormous deposit
A larger deposit can provide access to a wider range of mortgages and potentially more competitive rates, but first-time buyers do not always need to save 15% or 20% of the purchase price before exploring their options.
Some lenders offer mortgages at higher loan-to-value levels, subject to affordability, credit history and property criteria.
The buyer must also budget for costs beyond the deposit, including:
- Solicitor and conveyancing fees.
- Valuation or survey costs.
- Mortgage arrangement fees.
- Property transaction tax where applicable.
- Moving expenses.
- Insurance.
- Initial repairs, furniture and appliances.
- An emergency reserve after completion.
Using every available pound for the deposit can leave a new homeowner financially exposed. The objective should be a realistic purchasing budget, not simply the largest possible deposit.
Myth 2: Paying rent proves you can afford the same mortgage payment
A tenant may have paid £900 or £1,000 in rent every month for several years and reasonably feel that an equivalent mortgage payment should be affordable.
A lender’s calculation is more complicated.
It may consider:
- Basic salary and other acceptable income.
- Loans and credit-card balances.
- Vehicle finance.
- Childcare and maintenance payments.
- Dependants.
- Household expenditure.
- The proposed mortgage term.
- The possible effect of higher interest rates.
The lender must assess whether the mortgage remains affordable under its own criteria. A strong rental payment history can demonstrate responsible financial conduct, but it does not automatically determine the amount available.
Different lenders can still reach different affordability figures from the same income and commitments.
Myth 3: Self-employed applicants cannot obtain a mortgage
Being self-employed does not automatically prevent someone from securing a mortgage.
The applicant will normally need to demonstrate their income through appropriate evidence. Depending on the business structure and lender, this may include:
- Accounts.
- Tax calculations and tax-year overviews.
- Business and personal bank statements.
- Salary and dividend information.
- Partnership income.
- Details of retained profits.
- Current business performance.
- Confirmation from an accountant.
Some lenders assess sole traders using taxable profits, while company directors may be assessed using salary and dividends. Certain lenders may also consider retained business profits in suitable circumstances.
Trading history remains important, but lenders differ in the number of years they require and how they approach a recent increase or reduction in income.
Self-employed applicants should organise their evidence before viewing properties seriously.
Myth 4: Your income must be perfectly regular
Not every first-time buyer receives one fixed monthly salary.
Applicants may earn overtime, bonuses, commission, shift allowances or income from more than one job. Others work on temporary contracts or have recently changed roles.
A lender may accept some or all of this income, but the treatment varies.
It may be averaged over a period, restricted to a percentage or excluded if it is too recent or irregular. Evidence could include payslips, P60s, employment contracts and bank statements.
The important point is that variable income does not automatically mean no mortgage. It means lender selection and supporting evidence become particularly important.
Myth 5: One historic credit problem means automatic rejection
Late payments, defaults, county court judgments or other credit difficulties can affect a mortgage application, but they are not all treated identically.
A lender may consider:
- The type of credit problem.
- The amount involved.
- How long ago it occurred.
- Whether it has been satisfied.
- The reason it happened.
- The applicant’s subsequent financial conduct.
- The deposit available.
A small, historic issue may be viewed differently from recent missed mortgage payments or continuing arrears.
Applicants should check their credit information with all three main UK credit-reference agencies before applying. Incorrect addresses, unknown accounts or inaccurately recorded missed payments should be investigated early.
Making repeated speculative applications can create additional problems. The circumstances should be disclosed honestly so that an appropriate lender can be considered.
Myth 6: You must clear every debt before applying
Reducing expensive borrowing can improve affordability, but having a credit card, personal loan or vehicle agreement does not automatically prevent a mortgage.
The lender will include ongoing commitments within its calculation.
Using all deposit savings to clear a low-cost debt may not always produce the best result if it leaves the buyer without the minimum deposit or purchasing costs. Conversely, reducing a substantial monthly commitment could increase the mortgage amount available.
The effect depends on the debt, balance, monthly payment, remaining term and lender’s affordability model. The figures should be assessed before money is moved.
Myth 7: You should wait until you are ready to apply
Many tenants delay speaking to anyone until they have found a property and believe their finances are perfect.
That can be too late.
A mortgage conversation six to twelve months before the intended purchase can identify:
- A realistic deposit target.
- The likely borrowing range.
- Credit information requiring attention.
- Debts affecting affordability.
- Documents that must be prepared.
- How variable or self-employed income may be treated.
- Additional buying costs that need to be saved.
The initial conversation is not a commitment to apply. It can provide a preparation plan and prevent the buyer from approaching unsuitable lenders.
A decision in principle is not a mortgage offer
Once sufficiently prepared, a buyer may obtain a decision in principle showing how much a lender might consider based on initial information.
This can provide a useful guide when viewing properties, but it is not guaranteed approval.
The final decision remains subject to the complete application, supporting documents, credit checks, affordability assessment, underwriting and an acceptable property valuation.
Buyers should avoid arranging their finances around the maximum figure alone. A comfortable monthly payment and adequate reserves matter just as much as the highest available mortgage.
Find out what is genuinely possible
Some tenants will need more time to build a deposit, improve their credit position or reduce financial commitments. Others may discover that their circumstances are stronger than they assumed.
NetRent Mortgage Solutions works with DNA Financial Solutions to help tenants and first-time buyers understand their likely options and prepare before making an application.
If you hope to buy within the next six to twelve months, contact NetRent:
Telephone: 01352 721300
Email: mortgages@netrent.co.uk
NetRent does not provide legal or tax advice. This article represents our general understanding of the mortgage and rental property market and is provided for information only.
Mortgage products, rates, fees, affordability calculations and lender criteria can change. Individual circumstances vary, and appropriate mortgage, financial and legal advice should be obtained before proceeding.
Your home may be repossessed if you do not keep up repayments on your mortgage.