Almost one in ten people think they need a deposit of at least 40% and 18% said they thought that 30% down payment is necessary, according to research by advice website Unbiased.co.uk.
However, in reality what is needed to get one of the current best buy mortgages is just under 22% and can be as low as 19% for a five year fixed rate deal.
Researchers believe that months of alarming news from the banking sector and high profile crackdowns by individual lenders appears to have left an extreme impression on the public.
Londoners in particular feel the screw has tightened more severely than it actually has, the research shows.
Confusion also exists when it comes to how many times an individual's annual income the average mortgage provider would consider lending.
Over one in four Brits feel lenders would restrict a homeloan for a typical borrower to 2.5 times their annual income, while 52% believe three times salary is the limit. Again, Londoners are the gloomiest, with 32% expecting to be offered no more than 2.5 times their salary.
But in reality, whilst lenders are still being more conservative than in normal times, as a basic guide most lenders will offer between 3.25 and four times an individual's annual income.
'With the credit crunch in full swing and lenders tightening their lending criteria, it is not surprising that people are confused about the mortgage options available to them,' said David Elms, chief executive of Unbiased.
'Britain has been gripped by the recession doom and gloom and this has lead to an extremely pessimistic view of the mortgage market. In reality, whilst the lending criteria we have seen applied over the last few years are a thing of the past, there may well be options available to people looking to take out a new mortgage,' he added.
'Our research reiterates just how important it is in the current market conditions to seek advice. Many people may be putting off looking for a mortgage simply because they think they won't be able to get a good deal,' he concluded.
