Almost four in 10 buyers believe they need a deposit of 10% or more to buy a home, according to the Mortgage Advice Bureau (MAB).
This misconception may be holding back a “significant proportion of first-time buyers”, said Rachel Geddes, strategic lender relationship director at MAB.
The myth persists despite a large number of 95% deposit mortgages being available and many major lenders having launched options for those with even smaller deposits – including Lloyds Bank, which launched a 2% deposit mortgage this week.
Buyers are held back
Lloyds is the second major lender to break the 5% deposit barrier.
Earlier this year, Santander launched its 98% LTV mortgage for first-time buyers with a minimum deposit requirement of £10,000, based on a maximum purchase price of £500,000.
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Despite this, knowledge of sub-10% deposit mortgages remains “strikingly low”, Geddes said.
Geddes continued: “A large proportion of buyers are making decisions based on assumptions, particularly around how much they need to save before they can even consider buying.
“With a wide range of low-deposit and alternative mortgage options now available, understanding the different routes to homeownership is crucial. Speaking to an expert mortgage adviser can help prospective buyers cut through the noise, understand what’s actually required, and take the next step with confidence.”
Lack of knowledge persists
The figures showed that 73% were unaware of 95% loan-to-value (LTV) mortgages, while 80% were unaware of ‘track record’ mortgages, which can help renters get a mortgage by proving they’ve kept up with rental payments. Meanwhile, 70% were unaware of the full range of family-assisted mortgage options, which include mortgages where parents act as a guarantor.
MAB said the findings suggest many prospective buyers may be ruling themselves out of a property purchase before fully understanding what’s available.
The study also showed that 39% believed a deposit of 10% or more was required and only 50% could correctly identify 5% as the typical minimum deposit amount.
David Morris, head of homes at Santander UK, said: “With so many misconceptions about what it takes to buy a home, many first-time buyers could be missing out on their chance to get on the housing ladder by not talking to an expert.
“Brokers are specialists in helping their clients see beyond the widely reported affordability struggles, instead looking at their individual circumstances to see what’s possible and using their knowledge to find the most appropriate options in the market.
“With many lower-deposit mortgage solutions coming to the market, many first-time buyers could find that they’re closer than they think to get the mortgage they want and to being able make their homeownership dreams a reality.”