New research from Lloyds has exposed widespread mortgage myths, with more than half of would-be buyers believing existing debt automatically rules them out of getting a mortgage and stops them moving.
The study found that 58% wrongly think having debt would prevent them from being approved for a mortgage, while 37% believe they need a 20% deposit. Some 40% think having an overdraft would definitely count against them, 38% believe receiving benefits would stop them getting a mortgage, and 31% think recently changing jobs would put home ownership beyond their reach.
Factors lenders actually consider
Lloyds, which owns Halifax, said mortgage providers consider a range of factors rather than automatically ruling someone out because of one aspect of their finances. These include income, outgoings, credit history and overall affordability.
Other factors prospective first-time buyers wrongly believe would automatically prevent them from getting a mortgage include: 54% being on a zero-hours contract, 40% being in an overdraft, 38% receiving benefits, 37% not having a 20% deposit, 31% having recently changed jobs, 30% not having a perfect credit score, 27% earning less than £50,000 a year, 24% being self-employed, 21% using Buy Now Pay Later, 20% being on maternity or paternity leave, and 13% having student loan debt.
Lloyds says none of these factors would automatically prevent most people from being offered a mortgage, although applications remain subject to individual circumstances and affordability and eligibility checks.
The £5,000 deposit option
One of the biggest misconceptions is that buyers need to build up a huge deposit before they can even contemplate purchasing a home. Lloyds has launched a mortgage allowing eligible first-time buyers to put down a £5,000 deposit on homes worth up to £300,000.
The product, available through both Lloyds and Halifax as well as brokers, allows borrowing of up to 98% of the property's value, subject to a maximum loan-to-income ratio of 4.5 times earnings and other eligibility checks. Lloyds currently lists the product alongside its other first-time buyer mortgage options, including 95% mortgages requiring a 5% deposit.
The bank stresses that a larger deposit can still be beneficial because it reduces the amount borrowed and can result in lower monthly repayments and potentially better rates.
Debt does not automatically mean 'no'
Being in debt is another major source of confusion. Having a student loan, credit card balance, car finance or overdraft does not automatically prevent someone from obtaining a mortgage. Instead, lenders look at whether existing repayments are affordable alongside the proposed mortgage and the borrower's other commitments.
Similarly, there is no single 'perfect' credit score that guarantees a mortgage. Lenders assess an applicant's wider financial circumstances and credit history rather than simply applying a universal pass or fail score. Self-employed workers can also obtain mortgages, although they may be required to provide additional evidence of their income.
First-time buyers putting their lives on hold
The research suggests the uncertainty surrounding mortgages is having a wider impact on the lives of would-be homeowners. More than a third – 37% – said being rejected for a mortgage was a particular concern. More than half, 53%, said they had delayed or given up important life milestones while trying to get on the property ladder.
That included: 28% delaying or giving up travelling, 15% putting off buying a car, 14% delaying marriage, and 14% delaying having children. Almost two-thirds – 64% – said they had cut back on everyday spending while saving for a home. Holidays were the most common sacrifice, affecting 46%, followed by eating out at 41% and buying new clothes at 39%.
For some, the prospect of buying a home has become so daunting that they believe other major achievements would be easier. More than a quarter – 27% – said learning a new language felt more achievable than buying their first home. One in five said running a marathon or writing a book seemed easier. And almost one in ten – 9% – said winning Gladiators would be more achievable than buying a home.
Lloyds has teamed up with Gladiators star and first-time homeowner Livi Sheldon, also known as Diamond, to challenge some of the misconceptions.
Amanda Bryden, Head of Mortgages at Lloyds, said: "Buying your first home can feel overwhelming, especially when you're trying to save for a deposit while balancing everyday costs and other life goals. Our research shows many aspiring first-time buyers believe they need to be debt-free, have a perfect credit record or save a 20% deposit before they can even think about getting a mortgage. In reality, mortgage decisions are based on a much broader picture of your finances and circumstances. While affordability is important, don’t rule yourself out because of misconceptions about what lenders look for."
She added that prospective buyers should consider speaking to a mortgage adviser or broker early in the process to understand what options may be available.
Livi Sheldon said: "Buying my first home was an incredible milestone, but I know how easy it is to look at the challenges involved and wonder whether it's achievable. A lot of people assume they need everything to be perfect before they can even think about getting a mortgage, but that's not necessarily the case. Talking to experts and understanding your options can make a huge difference."
The message comes with an important caveat: not being automatically ruled out does not mean an applicant will necessarily qualify. Mortgage providers still carry out affordability, credit and eligibility checks, and borrowers need to be confident they can afford repayments both now and in the future.
