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First time buyer misconceptions when it comes to buying a home

Recent research suggests first-time buyers need some help to be better informed about the homebuying process to protect themselves from stress, legal headaches, and disappointment. Here we list - and debunk - the common first time buyer misconceptions

first time buyer misconceptionsA new study from Santander Mortgages has revealed striking misconceptions and knowledge gaps among aspiring first-time buyers as they prepare to make the biggest purchase of their lives.

The research – which surveyed 2,000 non-homeowners – revealed the following list of misconceptions, all of which we have heard from members and users of our site.

Common first time buyer misconceptions debunked

  1. 76% of buyers surveyed believed that Loan to Value (LTV) actually stood for ‘Long Term Value’ and referred to the expected property value increase over time. The acronym LTV is used mercilessly when it comes to getting a mortgage. The “loan to value” actually tells you what percentage of the home’s value is borrowed. For example, if you buy a £100,000 house and you pay £20,000 as the deposit, your LTV is 80% because you’ve already paid 20% when you put down the deposit. If you were to pay £5,000 deposit, your LTV would be 95%. Generally speaking, higher LTVs lead to higher interest rates, because they are seen as riskier for lenders. But to understand what you can borrow, speak to a fee-free mortgage broker or use the online mortgage calculator today
  2. 71% thought honesty was a legal requirement with sellers obliged to point out any and all property faults. The idea of caveat emptor – let the buyer beware – has been a guiding principle of house buying in the UK for some time. However, since 2013, the description and sale of property has come under the CPR (Consumer Protection Against Unfair Trading Regulations). This means that if the seller doesn’t disclose something that could legitimately affect the buyer’s decision, the seller could be prosecuted. So while important information should be revealed, finding a good conveyancing solicitor who can ask the right questions will be critical, as will getting an independent survey of your home’s condition.
  3. 62% believed exchange happened on moving day and referred to the exchange of keys. This is a common first time buyer misconception we hear often at the HomeOwners Alliance. In fact, the day of exchange refers to the point at which you exchange contracts. Read our guides How do I exchange contracts and What to expect on the day of completion 
  4. 57% were of the opinion that a mortgage lender will let you borrow up to ten times a single or joint income. All lenders use a multiple of your income as a basis for establishing what you can borrow. Every lender works within the parameters of its own guidelines and some can be more generous than others. But most lenders will use an income multiple of 4 times your salary, some will use 5 times salary and a few will use 6 times salary, under the right circumstances. A mortgage broker can search the market for you and advise on which lenders will lend you the most
  5. 56% thought buildings insurance was optional. In fact you have to organise building insurance at the point of exchange of contracts, because after exchange, you are liable for the property. Mortgage lenders usually make it a condition of your mortgage agreement.
  6. Almost half (43%) were of the opinion that housing fall throughs, caused by a break in the chain, would result in any costs already paid to be refunded in full. No, this isn’t the case. Around one quarter of housing transactions fall through every year, leaving both buyers and sellers hundreds and even thousands of pounds out of pocket. That’s why we think home buyers protection insurance, which costs just £47 and is available here, is a great idea.
  7. 22% of people believed the estate agent would pay for the survey of the property. Again, that sadly isn’t the case. You’ll need to get your own survey into the condition of the property. Check out our guide “what sort of survey should I have?”
  8. 8% of respondents believed stamp duty land tax is a fee for registering a property with the postal service. Thankfully this misconception only applied to a small percentage of people. But if you’re not sure what exactly stamp duty is, when you need to pay it and how much it is, then our guide to stamp duty for first time buyers can help.

Commenting on the research, Chief Executive of the HomeOwners Alliance Paula Higgins said, “It’s no surprise first time buyers have no prior knowledge of the home buying process. But as soon as you start thinking about your first step on the property ladder, you do need to quickly get up to speed so you can make informed decisions.

Our site arms you with all the insight and expert advice they need. Beyond that, engaging professionals like fee free mortgage brokers, surveyors and conveyancing solicitors you can trust to help steer you through the process will be essential. So make sure you shop around the the services you need.

“We are also working with government to reform the home buying and selling process to make it more certain for home buyers and sellers, and reduce the number of collapsed transactions. I’m pleased to say work on our proposal for reservation agreements is underway. These legally binding documents will mean both buyers and sellers commit to proceeding with a transaction and pay a deposit to cover the other sides costs if they have to pull out.”

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