80% LTV Mortgages: Everything You Need to Know
Saving up a significant mortgage deposit is one of the primary hurdles that almost every prospective homeowner is faced with. It takes a substantial amount of economical prudence and a great deal of time. However, such dedication is met with just reward, namely, access to some of the most favourable mortgage deals that are on the housing market. Your options are determined by your budget, and an 80% LTV (loan to value) mortgage may be your best option for getting a spot on the property ladder. 80% LTV mortgages are ones which require you to put down a deposit equal to 20% of a property’s price, leaving you to borrow the leftover 80% from a lender.
An 80% loan is a moderate ask from a mortgage provider, when compared to those mortgages with higher loan to value ratios. Consequently, if you’ve accumulated a deposit worth 20% of a property’s value then you’ll have an array of choices available to you. Figuring out which is the correct one can be challenging, it’s for this reason why we recommend that you use an expert mortgage broker that can guide you through the whole process while discerning the perfect product for you and your situation.
We at The Mortgage Genie are pleased to say that we have turned plenty of our clients’ housing dreams into a reality by securing an 80% LTV mortgage for them. Reach us at 01915809890 today if you’re interested in becoming one of the many among our success stories.
Despite what we can do for you, there’s a lot to take into account regarding 80% LTV mortgages. To help you inform yourself, we’ve put together this guide which addresses all the essential questions and details you need to know in order to make a decision. We’ll cover:
- What is an 80% LTV mortgage?
- How do 80% LTV mortgages work?
- What types of mortgage rates are there for 80% LTV mortgages?
- Can I get an 80% LTV mortgage?
- What are the advantages and disadvantages of an 80% LTV mortgage?
- Can you get an 80% LTV buy-to-let mortgage?
- Can first-time buyers get an 80% LTV mortgage?
- Alternatives to 80% LTV mortgages
What is an 80% LTV mortgage?
The LTV, or loan to value ratio, of a mortgage is a specific percentage of the total cost of the property that you want which you will need to borrow in order to buy it. In this context, an 80% LTV mortgage is one that enables you to put down a mortgage deposit worth 20% of a house’s value, having a lender loan you the remaining 80%. Additionally, if you were remortgaging or moving home by way of an 80% mortgage then you could use your current home equity to make up the rest.
To give an example, say you had your eye on a property valued at £175,000 and were going to use an 80% LTV mortgage in order to get it. For this, you’d need to pay a deposit of £35,000, requiring you to borrow the leftover £140,000 from a lender, you then begin to return this loan gradually. As a general rule, lenders are willing to offer up to 4x an individual’s or couple’s yearly earnings. Meaning, you’d have to have an annual income of around £35,000 to purchase a house worth £175,000.
How do 80% LTV mortgages work?
80% LTV mortgages teeter on the brink of being regarded as high risk investments by lenders because, while they aren’t the highest LTV ratio mortgages available, they are a moderate ask. Having said this, the majority of banks offer 20% deposit mortgages since saving for such a deposit does indicate a decent level of financial stability and money-handling capabilities. Evidently, two traits that mortgage providers will look to positively when considering your suitability as a candidate. Some higher LTV mortgages may require support from a guarantor, this is not the case for 80% mortgages.
For these reasons, you won’t have to search for very long to find a lender that can offer you an 80% LTV mortgage deal, typically as a repayment mortgage. Repayment mortgages are most common and mean you return the capital you borrowed gradually through monthly instalments. Both you and your mortgage provider must be very certain that you can comfortably afford to consistently make such repayments, plus the usual added interest. When you’ve fully repaid your mortgage you will then own the property outright.
What types of mortgage rates are there for 80% LTV mortgages?
One part of selecting the best mortgage deal comprises assessing the competitiveness of the attached interests rates. If you aren’t aware of the most favourable rates that are available to you then you will be losing out financially in the long-term. It’s vital to minimise the amount you’re paying back each month. The majority of mortgages fall under two types, namely, fixed-rate and variable-rate.
As the name suggests, if you’re on a fixed-rate mortgage then you will, without change, pay the agreed-upon interest rate for a set period. This length of time will be between either two, three, five, or ten years. Interest at a fixed-rate can sometimes appear to be relatively high, but this is countered by the fact that such rates entail a degree of security over the cost of your monthly repayments. For instance, it makes it easier to stick to a budget because you can be certain how much you will be contributing towards your mortgage every month. Moreover, you won’t be affected by any significant interest rate changes, which can otherwise prove to be quite costly.
Variable-rate mortgages work by having you subject to changeable interest rates. That is, the added interest to your mortgage repayments will fluctuate, whether increase or decrease from month to month. What determines variations here is up to the discretion of your lender, and they don’t necessarily have to adhere to a financial indicator, such as the Bank of England base rate. Tracker mortgages, however, do respond to financial indicators. So, if you’re on a tracker mortgage and the Bank of England’s base rate varies, then your interest rate will follow suit. Other types available for 80% LTV mortgages include discount and capped rate mortgages, although these are comparatively less common and are fewer in number.
Obviously, if you choose to go with a variable-rate mortgage then you’ll have the advantage of benefiting from lower interest rates when they are in place. Yet, conversely, when interest rates spike, you will end up paying more than if you had a fixed-rate mortgage. In this way, fixed-rate mortgages are more secure, and so make it easier for you to handle your finances.
Whichever mortgage rate type you opt for, you will be put onto your lender’s standard variable rate (SVR) when the mortgage term ends. Most people decide to remortgage at this point because SVR’s are generally demanding and, naturally, there are better deals out there. When determining your budget, it’s also important that you take the additional fees and charges into account.
Can I get an 80% LTV Mortgage
Whether or not you are eligible for an 80% LTV mortgage is decided by the lender that you’ve applied with. Each lender has a specific set of lending criteria which they will measure your financial and personal profile against. If you’ve saved for a 20% deposit, this doesn’t go to say that your suitability is a guarantee.
Universally, lenders value a high level of financial stability in their applicants. This is to assure them that you’ll be able to keep up with the monthly repayments without any issues. To assess this, mortgage providers will look to the quality of your credit score as an indicator. As such, any signals of financial insecurity will work to negatively affect your chances of being approved for a mortgage.
This likewise means that they will check for if you’ve ever failed to meet payday loans or had adverse credit. By the same token, if you’ve ever handled a court county judgement (CCJ), an IVA, or filed bankruptcy in the past, this will be factored into your eligibility. If any of these appear on your record then it can cause lenders to flat out reject you. On the bright side, however, the severity of these instances will diminish over time, especially if you exhibit continued positive financial behaviour. An affordability check will also be carried out. Lenders will want proof of your income, as well as additional details concerning your regular expenses and outgoings which they will then scrutinise.
If you want an idea of where you stand financially then you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to spot possible mistakes and instances of fraudulent activity on your record so that you can address any problems as soon as possible. The trial and subscription can be cancelled at any time.
What are the advantages and disadvantages of an 80% LTV mortgage?
All mortgages come with a similar set of advantages and disadvantages to be considered when deciding which is the right option for you, and 80% LTV mortgages are not exempt. What’s right for you depends on your singular personal and financial situation.
A 20% deposit is a considerable sum, consequently, an advantage is that you’ll have access to a fairly large range of deals with which to compare and choose from. These deals will also have good interest rates, relative to what higher LTV mortgages offer, meaning that your monthly repayments will be smaller and more manageable. Reason being, 80% mortgages only pose a moderate amount of risk for mortgage providers because it’s inherent that you have a certain degree of financial trustworthiness.
Establishing such solid finances where this is the case, of course, isn’t easy. And so, the time taken to amass a 20% deposit is a disadvantage to some who don’t have the means to do so, but still, are eager to become a homeowner. For the majority of people, this is a process which takes years of living frugally and isn’t ideal for everyone. Secondly, if you firmly set an 80% LTV mortgage as your goal then you immediately dismiss the vast array of other deals which come with even better interest rates and lower monthly repayments. It pays in the long run to not be hasty when it comes to acquiring a mortgage. Therefore, it’s integral that you don’t set the bar too low, nor too high for yourself.
Can you get an 80% LTV buy-to-let mortgage?
Unfortunately, if you want to purchase a property to subsequently rent it out to tenants, then it’s unlikely that you’ll be able to get an 80% LTV mortgage for this purpose. Typically, the lowest a lender is willing to accept for a buy-to-let mortgage is a deposit of 25%. Meaning, you’ll need to apply for a 75% LTV buy-to-let mortgage. It’s worth noting that this isn’t a substantial leap away from an 80% loan to value ratio, and so is achievable if this is your current price range. Nevertheless, there are, however, a few select specialist lenders who are able to offer you an 80% buy-to-let mortgage. Albeit, they will demand comparatively high interest rates and your lender will want evidence of potential future profitability alongside an excellent credit rating. These mortgages won’t require standard repayments, rather, they are usually interest-only mortgages.
Can first-time buyers get an 80% LTV mortgage?
80% LTV mortgages are a balanced approach in that they don’t require an unreasonably large deposit, nor a low deposit that implies extortionate interest rates. They are, therefore, a very good option for first-time buyers. It’s a good idea for first-time buyers to save up a considerable deposit because lenders have a prejudice which deems them as being ‘high-risk’ candidates. This leads providers to carry out stricter inspections of your personal and financial profile. Amassing a 20% deposit will, thereby, counteract any preconceived judgements because it denotes financial trustworthiness.
It is, in fact, recommended that you save for such a deposit because the more manageable interest rates decrease the chance of your not being able to comfortably make the monthly repayments. If you do fail to keep up then you’ll incur fines and your chances of approval for a future mortgage will be damaged. It’s essential that you make efforts to be financially astute and consistent.
Alternatives to 80% LTV mortgages
If you’ve come to the conclusion that an 80% LTV mortgage is out of your reach then it should be reassuring to know that there are a lot of other mortgage options up for grabs. For instance, it was only in April of 2021 that the government announced a 95% mortgage guarantee scheme. This has already supported itself by being an effective way of helping people to get their foot on the property ladder by obtaining a low-deposit mortgage. Moreover, there are a number of Help to Buy choices on offer.
And if an 80% mortgage is only marginally out of your budget, then you could choose to go with an 85% LTV mortgage or a 90% LTV mortgage. For those who are particularly keen to have a property of their own but are unable to save, 95% LTV mortgages can get you into a new house with a deposit of just 5%. Similarly, 100% LTV mortgages are even on the market. It goes without saying that these routes come with relatively higher interest rates, but what’s right for you is down to your individual financial situation.
We at The Mortgage Genie have an in-depth understanding on how to get a mortgage and are committed to helping people secure loans of all types. We sincerely hope that this guide has answered all of your queries and cleared up any doubts you may have had surrounding 80% LTV mortgages.
Every day we assist a growing number of people in finding housing happiness by helping them to get their ideal mortgage product and navigating them through every step of the, often complex, process. If you’re in need of a team of expert mortgage brokers then don’t hesitate to call us at 01915809890 and we’ll get you started on down the journey towards owning your dream house! And why not see how much you could borrow up to today by using our mortgage calculator?