Avoiding costly mistakes when applying for a mortgage as a first-time buyer is not easy.
From ignoring credit scores until the last minute to unrequited loyalty to one bank, there are a host of traps to fall into.
Forward planning is essential to make the process of buying your first home as straightforward and cost-effective as possible.
Delving straight into viewings and offers
It is easy to get carried away when looking for your first home and start booking multiple viewings and making offers.
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However, before stepping foot into a property, it is essential to get your finances in order and know what you can and cannot afford.
James Mulvaney, head of digital at Clifton Private Finance, said: “We always recommend seeking advice early, before booking viewings or making offers. This helps set realistic expectations about what you can afford.”
He added: “Understanding how much you can borrow, what fees to expect and how to present your finances in the best light, can remove much of the stress from the process.”
Many buyers start viewings without an Agreement in Principle (AIP). An AIP signals readiness to proceed, helps set a realistic price range, and can make an offer more compelling to sellers, particularly in a competitive market.
Ignoring credit scores until the last minute
Many first-time buyers do not pay enough attention to their credit score and report in the run-up to applying for a mortgage. Your credit score helps determine the mortgage rates and products available to you.
Mulvaney said: “Simple errors, like outdated addresses or missed payments, can be fixed, but only if you catch them early.”
Nicholas Mendes, mortgage technical manager at John Charcol, told The i Paper: “Lenders look closely at credit history, and small issues such as a missed mobile bill can trigger delays or declines.
“Checking several months in advance gives time to correct errors, settle small debts, and strengthen the application before any hard searches.”
Harry Goodliffe, a director at HTG Mortgages, told The i Paper: “Buy now pay later services are now being picked up by lenders more than ever, and too many short-term payments can work against you. A good credit score helps, but a solid credit history is even more important.”
Being loyal to your main bank
Many people do the majority of their banking with a single bank for years.
However, when applying for a mortgage, considering only your main bank could be costly in the long-run.
Mulvaney said: “Loyalty is a great marketing tool, but remember, banks want as many customers as possible to use their own products.
“If your bank advertises a loyalty rate, don’t overlook other lenders that might offer more competitive deals. Even a small difference can add up over time, leading to higher monthly repayments and potentially costing you thousands more over the course of your mortgage term.”
Mendes added: “A whole-of-market broker can compare options quickly and find better rates or criteria that fit the buyer’s profile.”
Erratic and high spending in run-up to mortgage application
Making a series of large and sudden transfers before making a mortgage application is not a good idea. Lenders look for consistent spending habits when assessing mortgage applications.
Mendes said: “Applicants often overlook how much a consistent financial record matters.
“Lenders value stability, so avoiding large unexplained transfers, clearing overdrafts where possible, and keeping income and outgoings steady in the run-up to applying will make the case look stronger.”
Ignoring the total cost of buying a home
For many first-time buyers, reaching a set sum for an adequate deposit is at the forefront of their minds. However, multiple costs must be factored in.
Mendes said: “A focus on the headline interest rate rather than total cost is another common mistake. Some products pair a low rate with high fees or short initial periods that cost more overall. Comparing the true cost over the fixed term, including all fees, is the fairest way to judge value.”
Buyers often also overlook costs such as solicitors’ fees, mortgage broker fees, valuation charges, conveyancing fees, stamp duty, mortgage arrangement costs and removal costs. You may also need to consider furnishing or renovation costs.
Mulvaney said: “If you don’t budget for these extra costs, you might find yourself short of funds right before completion, or forced to dip into emergency savings.”
Guides on websites like Money Helper can give you an idea of how much all the costs of buying a property are likely to add up to.
Not being careful about conditional selling
Some first-time buyers may not be aware that they do not have to use an estate agent’s in-house mortgage adviser, solicitor or other professional services. Buyers can always choose their own broker, conveyancer and surveyor.
Goodliffe said: “One of the biggest mistakes first-time buyers make is falling for conditional selling. You don’t have to use the estate agent’s broker or solicitor, no matter how much pressure they apply. Their priority is to sell the property, not to get you the best mortgage or legal deals.”
If an offer or viewing is made contingent on using the estate agent’s services, be confident about pushing back.
Giving up after being rejected
Getting a mortgage is not always straightforward and is very different to securing a tenancy on a rental property or doing something like buying a car.
Mortgage rejections can happen for many different reasons, including not meeting a lender’s affordability criteria, having a high debt-to-income ratio or a low credit score.
Do not be dejected if your mortgage application is rejected and, if you have one, utilise the expertise of your mortgage broker to help move the process forward.
Mendes said: “Some people give up after a first rejection, which is unnecessary. Each lender has a distinct risk model, so a decline from one does not mean a buyer will fail everywhere. “Specialist lenders can help borrowers with an impaired credit history get on the ladder with a relatively small deposit, provided the rest of the case stacks up.”
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