Last updated: 28/10/2021 | Estimated Reading Time: 5 minutes
High loan to value (LTV) mortgages (90% plus)
Saving for a deposit as a first-time buyer can be daunting. If you’re paying rent whilst saving for a deposit, you may be eager to get on the property ladder as soon as possible and save money. High-LTV mortgages of 90% or higher can offer you the opportunity to get on the property ladder without saving for an expensive deposit. This guide will take you through the advantages and disadvantages of high-LTV mortgages, and what other options might be available to keep your deposit costs low.
In This Guide:
- What is a high-ltv mortgage?
- 95% LTV mortgages
- 100% LTV mortgages
- Should I save for a larger deposit?
- What are my other options?
What is a high-ltv mortgage?
LTV is the loan to value ratio; this means the amount of your home that you own outright compared to the amount that is secured against a mortgage.
A high-LTV mortgage has a low deposit (10% or less), meaning that you own less of your property outright (up to 10%), and owe more as a mortgage (from 90% to 100%). High-LTV mortgages are usually for first-time buyers but are also useful for existing homeowners looking for a low-deposit remortgage.
As a first-time buyer, you will normally need at least a 5% deposit. Your lender will take into account your income, outgoings and credit score when deciding how much they are prepared to lend you. Some lenders will insist upon a mortgage indemnity guarantee (MIG). This is an insurance policy protecting the lender against loss if you default on your mortgage payments. It’s often you who will pay for this, and whilst it’s normally included in your interest and fees, if you are charged separately the premiums can be steep.
95% LTV mortgages
95% LTV mortgages are not available to all borrowers. Some lenders will only consider you if you are a first-time buyer.
With a 95% LTV mortgage, you will borrow 95% of the property’s value and use your 5% deposit to pay for the rest. This has the benefit of meaning you only need a relatively small deposit.
A 95% LTV mortgage is risky for both you and the lender, so interest rates are often very high meaning you may not have access to the best mortgage rates. Because your deposit is so small, you are at greater risk of going into negative equity. Negative equity means that your property value has decreased so that you owe more than your property is worth. This can make it very difficult to move house or to remortgage onto another deal.
100% LTV mortgages
100% LTV mortgages are less common and have an even higher risk than other high-LTV mortgages. A 100% LTV mortgage means that you borrow the entire purchase price of the property pay nothing as a deposit. This makes it possible to get onto the property ladder without saving for a deposit first.
The risk of going into negative equity is even higher with a 100% LTV mortgage, and lenders are often very reluctant to grant them, this means that interest rates are often extremely high.
100% LTV mortgages are only available as guarantor mortgages meaning you would need a family member to put up cash savings or their own property as security in case you struggle to make mortgage payments. Without a guarantor, the lowest deposit mortgage is likely to be a 95% LTV mortgage.
Should I save for a larger deposit?
High-LTV mortgages are often a useful way to get onto the property ladder, however, their high interest rates and fees and the risks involved may mean you want to consider saving for a larger deposit.
A high-LTV mortgage can be useful if you are renting at the same time as saving for your deposit. High-LTV mortgages have the advantage of helping you buy your home sooner, or move house despite having a low amount of equity in your current property.
The disadvantages of high-LTV mortgages are uncommonly high interest rates and fees because of the high level of risk taken by the lender. You will also get much less choice with a high-LTV mortgage because there are fewer mortgage products available. Even saving for a 90% mortgage with a 10% deposit can significantly increase your choice of mortgage deals.
What are my other options?
There are a number of potential options to consider if you are looking to get onto the property ladder but are not in a position to save for a large deposit.
Help to Buy
Help to Buy is a government equity loan scheme that offers a 20% loan to buy a property or 40% in London. This means that if you have a 5% deposit, instead of taking out a 95% LTV mortgage, you can lower your LTV to 75% or 55% if you are buying a home in London. This can help get you access to more competitive mortgage rates.
Shared Ownership means that you will part-buy and part-rent your home from a housing association. This allows you to take out a much smaller mortgage than if you were buying the whole property. You will usually purchase a share of between 25% and 75% of your property from the housing association.
Property developer loan
Property developers will sometimes offer to lend you money for a deposit when you purchase a new home they have built. For example, they may offer to lend you 20% of the property value and ask to be repaid in 15 years. This will mean you need to ensure you can afford to repay both your mortgage and the property developer’s loan.