More than half of people taking their first step on the property ladder think they can borrow up to 10 times their income.
Nearly six out of 10 first-time buyers mistakenly think mortgage lenders will allow them to borrow up to 10 times their income.
Their confusion does not end there, with 76% believing that LTV stands for ‘long-term value’ and refers to the projected amount by which their property is expected to rise in value over the mortgage period.
Seven-out-of-10 also think the seller is obliged to tell potential buyers about any problems with the property, according to research from Santander.
At the same time, 43% of first-time buyers were convinced that if a chain they were in collapsed, they would be refunded any money – such as solicitor’s fees and survey costs – they had already spent.
In reality, mortgage lenders will traditionally only lend three to four times a borrower’s income – and even then, they have to pass a strict affordability test.
LTV stands for ‘loan to value ratio’ and refers to the proportion of a property’s value being advanced, while a seller is not obliged to tell people about issues with a property and any money spent on professional fees will not be refunded if a chain collapses.
Why is this happening?
Miguel Sard, managing director at Santander Mortgages, said: “The homebuying process can sometimes seem very complicated and old fashioned, with lots of confusing jargon to get your head around.”
There are also lots of acronyms related to mortgages, such as LTV (loan to value), APR (annual percentage rate) and SVR (standard variable rate) to name a few.
Some terms are also confusing. For example 'exchanging' refers to the moment contracts are sent from one solicitor to the other, not when the transaction is completed and the property’s keys are handed over, as 62% of people in the survey thought.
Who does it affect?
First-time buyers’ confusion about purchasing a property could have significant financial consequences for them.
Nearly four-out-of-10 buyers thought interest rates on a mortgage would stay the same for the entire life of the loan.
In reality most mortgages revert to the lenders more expensive SVR once the fixed term of the loan is up, such as after two-years for a two-year fixed rate mortgage.
Buyers also leaving themselves vulnerable to unexpected costs if they think sellers have to tell them about any defects in the property, while others thought buildings insurance was option if you had a mortgage.
They could also be in for some nasty surprises, with 23% expecting the deposit they paid to be refunded a year after they purchased the property.
What’s the background?
Other common misconceptions included 63% of first-time buyers thinking mortgage interest rates were lower in parts of the country where house prices were cheaper, while 26% of people thought once a seller had verbally accepted an offer, they were legally obliged to sell you the property.
One if five people thought the estate agent would pay for the property survey and 45% thought you only had to insure a new property once you had moved in.
But on a brighter note, potential buyers were more clued up about the financial costs associated with getting on the housing ladder, with many actually over-estimating how much they would have to pay for solicitors, surveys and removals.
You can get to grips with all the property-buying jargon with our glossary.
Top 3 takeaways
- Nearly six out of 10 first-time buyers believe that they can borrow up to 10 times their income
- A further 76% think LTV stands for ‘long term value’
- Seven-out-of-10 also believe the seller is obliged to tell potential buyers about any problems with the property.