Young buyers mortgage illiterate

Many first-time buyers are mortgage illiterate, according to new research by AA Legal Services.

Those looking to get their first mortgage on a property are confused by certain terms and may not be completely aware of what it is that they are buying.

The research found that 40 per cent of new buyers do not know the difference between a leasehold and freehold property, with those aged between 18 and 24 being the worst offenders.

AA Legal Services has expressed concerns that many young people are feeling the pressure of rising house prices and this may be forcing them into getting onto the property ladder without fully understanding what they are signing up to.

First-time buyers spend an average of £159,653 on their first property but 41 per cent have no idea what freehold means and 43 per cent are clueless as to the meaning of leasehold.

“Our research suggests that many homebuyers are so desperate to get onto the property ladder that they may be over looking vitally important basic legal principals,” commented James Molloy head of AA Legal Services.

The term leasehold means the right to hold or use a property for a fixed period of time according to a contract. However, many 18-24-year-olds thought it meant that the property could be rented out and others believed that it made the house exempt from council tax.

Freehold means that there is no limit to how long the property can be held and remains with the holder until he or she willingly transfers it. Six per cent of 18-24-year-olds thought freehold meant exempt from capital gains tax, while two per cent thought that only freemasons could buy freehold properties.

Tags: property ladder, difference, leasehold, Many first-time buyers, first mortgage, pressure