Survey reveals half of mortgage borrowers made mistakes
Our NerdWallet survey of 2000 homeowners looks at the mortgage mistakes people have made and how clued up they were about mortgages. The study includes their thoughts on mortgages, mortgage lenders and the process of applying for a mortgage loan and buying a property.
A mortgage is usually regarded as the biggest financial commitment that many of us are likely to make, so the need for a calm and considered approach is vital. But just how mortgage savvy are Brits?
Our survey of 2,000 adults in the UK explored their understanding of the mortgage process. It highlighted a lack of confidence in the mortgage application process, with more than half of those who have a mortgage admitting they made some mistakes when they applied for their existing mortgage.
Awareness of key mortgage application factors
Generally speaking, the majority of people recognised some of the main personal financial factors that mortgage lenders usually consider in relation to a mortgage applicant. These include their employment status (73%), the size of their deposit (66%), their credit score (65%), any outstanding debt on credit cards, loans and overdrafts (64%), and any adverse credit events such as a county court judgments (CCJs) or bankruptcy (62%). There was a marked difference in this knowledge across different demographics, with those in the 35-plus age groups more than twice as likely to recognise the significance of these factors compared to those aged 18 to 24 years.
Overlooked factors that could undermine mortgage applications
There were, however, areas where mortgage understanding was much weaker across all age groups. For instance, just 41% said that their spending on store cards would be considered by a prospective mortgage lender, despite it being a credit commitment that would always come under scrutiny when assessing the risk that a mortgage applicant represents and affordability. Similarly, only 37% believed that their day-to-day spending habits would be considered, even though most mortgage lenders are likely to ask about discretionary spending (money spent on items consumers don’t necessarily need). Meanwhile, 64% did not expect a mortgage lender to consider whether an applicant has received support from the government’s furlough scheme, even though it has been reported that some lenders have refused mortgage applications to furloughed and self-employed workers who have received support during the pandemic.
The persistent mortgage myths
Although they are far from widespread, some other mortgage myths are still at play which could influence mortgage applicants. Some 17% mistakenly believed it is not possible to secure a mortgage without taking out life insurance; 17% thought that stamp duty applies to all buyers, including first-time buyers, on any property value; and 13% thought that a mortgage in principle is a guarantee of a mortgage. It was, however, encouraging that only 8% thought they had to take out a mortgage with their current bank.
Low confidence is leading to mortgage mistakes
The poll also revealed that more than four-fifths of working age adults (81%) did not feel they had a good grasp of the support available to help them buy a property. For instance, only 10% thought they were eligible to apply for the government-backed mortgage guarantee scheme, which enables homeowners to secure a mortgage with just a 5% deposit.
The study also highlighted a lack of confidence in trying to navigate the mortgage application process. Some 77% of working age adults felt they lacked good knowledge about how to secure a decent mortgage and 81% were doubtful that they could distinguish between good and bad information on mortgages.
Given this lack of confidence, it is not surprising that over half (55%) of those who have a mortgage believed they had made at least one mistake with their existing mortgage. Almost a quarter (23%) regretted not shopping around enough for the best mortgage deals, while the same percentage said that automatically taking a mortgage with their existing bank was a mistake. Other blunders included adding the lender’s fees to the mortgage so that you pay more in interest over the mortgage term (22%), failing to get advice from a broker (21%), and not thinking about early repayment charges (17%).
Some people will go that extra mile to get a mortgage
However, not everybody had regrets, and there were some positive signs when it came to the steps that people would take to help secure a mortgage. In particular, 30% said they would save for a higher deposit; 26% would seek professional mortgage advice; 23% would pay off all of their existing debts; and the same percentage would save to pay costs and fees that might be hidden in the buying process.
The research was carried out in June 2021 for NerdWallet by market research company OnePoll. Ten questions were posed to a sample of 2,000 nationally representative UK adults about their thoughts on mortgages, mortgage lenders and the process of applying for a mortgage loan and buying property.
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Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more