85% LTV Mortgages: Everything You Should Know
Saving up a substantial deposit for a house is no easy task, especially in today’s financial climate. It takes a great deal of time and commitment. If, however, you have managed to save up a decent amount and you feel like the time is right to secure yourself a position on the property ladder, then an 85% LTV (loan to value) mortgage may be your best option. An 85% LTV mortgage is where you put down a deposit equal to 15% of a property’s value and have a lender provide you with the remaining 85%.
The higher your LTV ratio, the higher your interest rate will typically be, making 85% mortgages a relatively forgiving option. They occupy a space which doesn’t entail either overly-demanding repayments, nor require an unreachable deposit sum. Followingly, it’s not incredibly difficult to attain such a mortgage deal, as compared with others. This is especially the case when you hire an expert mortgage broker to help you throughout the whole process, as well as aid you in finding a product that’s suited to your individual situation.
Here at The Mortgage Genie we’re proud of the fact that we’ve realised many prospective UK homeowners’ dreams by securing an 85% LTV mortgage for them. You can reach us at 01915809890 today if you’re interested in joining the plenty among our success stories.
Despite what we can do for you, it’s also worth informing yourself on all the salient details surrounding 85% LTV mortgages. It’s for this reason that we’ve put together our guide, to present you with what you should know about them while answering the important questions. We’ll cover:
- What is an 85% LTV mortgage?
- How do 85% LTV mortgages work?
- What types of mortgage rates are there for 85% LTV mortgages?
- Can I get an 85% LTV mortgage?
- What are the advantages and disadvantages of an 85% LTV mortgage?
- Can first-time buyers get an 85% LTV mortgage?
- Alternatives to 85% LTV mortgages
What is an 85% LTV mortgage?
LTV, or loan to value, refers to the size of your mortgage deal as a percentage of a property’s total value. So, an 85% LTV mortgage means that you borrow 85% of a home’s cost from a lender. The other 15% of the property value is then paid by you in the form of a mortgage deposit. Alternatively, if you’re remortgaging or moving home, you can use your existing home equity to make up the remaining cost.
For example, if you wanted to make a purchase on a property with a value of £250,000 using an 85% mortgage then you would need to put a deposit of £37,500 down. Of course, this appears to be a hefty amount of cash, and it certainly is. In most cases, you’ll have to save for years to collect as much. The time likewise being determined by what value of property you’re after. Having said this, there are rewards that come with waiting and garnering a good deposit in the meantime.
How do 85% LTV mortgages work?
One of the foremost benefits of getting an 85% mortgage is that you’ll have a good chance of being accepted for one just for the simple reason that you’ve been able to save for a 15% deposit. This is because it’s a clear indication of your financial stability and capability at handling money, an evidently important factor that all lenders view favourably. It won’t require your application to be supported by a guarantor, for instance.
Therefore, it won’t be hard to locate a mortgage provider that will offer to loan you the remaining 85%. Subsequently, once you’ve agreed to a mortgage deal and purchased a property, you’ll then begin to pay back what you’ve borrowed through monthly instalments. These repayments also include the usual added interest. Fortunately, your shrewdness in saving for a 15% deposit will make these payments significantly fairer, compared to the rates that come with higher LTV mortgages.
What types of mortgage rates are there for 85% LTV mortgages?
When on the lookout for the best 85% LTV mortgage deal you should be trying to minimise the amount you’re paying every month, interest rates play a big part here. There are two types of interest rates which you’ll see are available for 85% mortgages. These are called fixed and variable rates.
If you’re on a fixed-rate mortgage then the initial interest rate agreed upon will be, without change, paid by you for a set period. This is generally for a span of between 2-10 years. The benefit here is that you have a sense of certainty concerning your contributions each month. It’s ideal if you can secure a mortgage deal when interest rates are low for this type. If, however, mortgage rates have spiked then a variable rate may be the cost-efficient option.
As the name suggests, a variable-rate mortgage has its interest rate fluctuate, that is, increase/decrease from month to month. What dictates the changes here depends on the type of variable-rate mortgage you have. E.g, a tracker mortgage’s interest rates are governed by the Bank of England’s base rate. Consequent to the set period ending, your interest rate will then adhere to your lender’s standard variable rate (SVR). It’s at this point most people consider remortgaging since SVR’s tend to be quite expensive, and better deals are typically up for grabs.
Whatever type of mortgage rate you go with, it’s worth taking into account the further fees and charges that come with your offer. Some mortgage deals can come with deceivingly low initial interest rates that are designed to entice you.
Can I get an 85% LTV mortgage?
Yes, it’s entirely possible to get an 85% LTV mortgage. In fact, the majority of lenders offer mortgages that require a deposit of 15%. There is, however, no guarantee that you’ll secure a mortgage just because you have a solid deposit. The chances that your application will be accepted also depends on other factors.
To assess you, lenders will run their usual checks against your personal and financial profile. This comprises a credit check which detects any failures to meet payday loans or whether you have adverse credit, for example. They’ll likewise look to see if you have any past court county judgements (CCJs), IVAs, and if you’ve filed for bankruptcy before. Each of these denote your suitability and may work against your application. Albeit, if it’s the case that these were handled a long time ago then some lenders will not mind, whereas others might still reject you.
Whether or not this applies to you, meeting an integral part of their criteria, an affordability check, will be essential. As a rule, lenders are typically willing to offer up to 4x an individual’s annual income. So, if you earn £30,000 a year, you could be offered a loan of around £120,000.
What are the advantages and disadvantages of an 85% LTV mortgage?
As with any mortgage, there are both advantages and disadvantages to an 85% mortgage route. What is considered to be the right deal for you entirely depends on your personal circumstances.
As we’ve already addressed, you’re more likely to secure more manageable monthly repayments and interest rates, relative to higher LTV mortgages. Moreover, you’ll have more choice in general, given that a wide range of providers offer 85% mortgages. And although, at first, a 15% deposit may seem like a vast amount, it is still quite a fair ask of a lender in order for them to see you as being a low risk to them. After all, a property investment is one of the biggest you’ll make in your life.
At this point you will have recognised just how much of a key part a deposit plays. And so, naturally, if you decide that a deposit of 15% is your limit then you could be missing out on even more lucrative deals. The bigger your deposit is, the better and stronger your position. If you wait longer to save even more, it will benefit you exponentially in the long-run. Don’t let this deter you from an 85% LTV mortgage, though, as what is best for you is determined by your specific financial situation.
Can first-time buyers get an 85% LTV mortgage?
As a first-time buyer, saving for a 15% deposit will not be easy, particularly if you’re younger. If, however, you can afford it and the ensuing monthly repayments then there is no reason as to why you couldn’t get an 85% LTV mortgage. Applying as a couple will also work to make the saving process significantly faster.
Even so, first-time buyers are considered to be relatively risky borrowers in the eyes of most lenders. Meaning, your options will be slightly limited. In order to find a suitable lender, the importance of a mortgage broker can’t be stressed enough here. It could hurt your chances if you apply to multiple mortgage providers and get rejected by each. Mortgage brokers have comprehensive knowledge of the market and utilising one will substantially increase your chances of acceptance.
Alternatives to 85% LTV mortgages
Don’t be disheartened if you’ve come to the conclusion that a 15% deposit is out of your price range, there are a vast array of other options to consider. It was only in April of 2021 that the government announced their new 95% mortgage guarantee scheme, an already proven and effective way of getting more people onto the property ladder by helping them to secure a low-deposit mortgage. On top of this, it’s worth taking a look at the sheer amount of Help to Buy choices that are available on the market today. Furthermore, 90% LTV mortgages also come with fairly competitive interest rates and reduce the size of the deposit you'd have to put down. Current council home residents should consider exploring a Right to Buy mortgage.
If you simply can’t wait to be a homeowner then it’s entirely possible that you could secure your own property with a deposit of just 5% by way of a 95% LTV mortgage deal. By the same token, a 100% LTV mortgage could see you with your very own house without having to save for a deposit at all. As you might assume, these deals will come with higher rates, yet could be the most suitable and correct choice for you.
Here at The Mortgage Genie we have an in-depth understanding on how to get a mortgage and are committed to helping people secure loans of all types. We genuinely hope that this article has answered all the questions and queries you might have had concerning 85% LTV mortgages.
Each day we help a growing number of people find housing happiness by helping them to get their perfect mortgage deal and by guiding them through every step of the process. If you’re in need of a team of expert mortgage brokers then don’t hesitate to call us today at 033 33 44 33 73 if you want to set yourself on the way of owning your dream property! And why not see how much you could borrow up to today by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.