What Is The Lowest LTV Mortgage Available?

Loan-to-value (LTV) is a metric to assess the lender’s risk when evaluating a mortgage application. 

Generally, the higher the LTV value, the greater the risk to the lender when approving the mortgage.

Naturally, lenders prefer to approve applications with low LTV as these carry much less risk.

For first-time buyers, the average LTV ratio is approximately 82% whereas for home movers, it is around 74% (source)

But what is the lowest LTV mortgage available in the market? And are you eligible for it? This is what we’re going to discuss today.

Let’s get into the details.

What Is LTV & How To Calculate It?

To understand LTV, let’s first see a simple formula to calculate it. LTV is essentially a ratio that is calculated as per the following formula:

LTV ratio = ( Mortgage Amount (MA) / Appraised Property Value (APV) )x 100

So, if you want to buy a property valued at £100,000, and you can make a 10% deposit, i.e., £10,000, you’ll need to borrow £90,000. Then, the LTV comes to £90,000/£100,000 x 100, which is 90%. 

As mentioned, the lower the LTV, the lower the risk to the lender. Therefore, lenders usually prefer to grant applications with low LTVs. 

That’s why putting in a larger deposit is better to lower the LTV value. It also ensures that you get a lower interest rate in most cases.

What Is The Lowest LTV Mortgage Available?

Generally, any LTV lower than 80% is considered a low LTV. You can find mortgages with LTV values below as low as 50% or 40% in the present market if you are borrowing a small amount against the property’s value.

In many cases, extremely low LTVs aren’t very suitable for the borrower, as it might be better for them to save up the remaining amount and buy the property outright without getting a mortgage.

Picture this: Sarah is looking to buy her dream home and has saved up a substantial amount.

She discovers that there are mortgages available with a 40% Loan-to-Value (LTV) ratio. This means if she opts for a 40% LTV mortgage, she only needs to borrow 40% of the home’s total value and cover the remaining 60% herself.

For example, if the house costs £500,000, with a 40% LTV mortgage, Sarah would need to borrow £200,000 and pay £300,000 upfront. 

This means, she’ll need to put in a larger deposit when applying for the loan. However, if she saves just a bit more, she could potentially cover the entire purchase price without taking on any debt so it is important to consider if that would be possible.

Should You Go for Extremely Low LTV?

It depends on your personal financial circumstances. That’s why we recommend discussing the matter with qualified mortgage advisors, who can better guide you.

As you might have guessed already, interest rates for low LTV mortgages are usually lower, but they vary depending on the lender’s criteria, the property value, and your financial records.

What Is The Highest LTV Mortgage?

Now that you know the lowest LTV mortgage, let’s examine the other end of the spectrum. 

The highest LTV ratio is usually 95%, which means you need to put in just a 5% deposit and can borrow up to 95% of the property value. Naturally, interest rates for such mortgages will be higher.

You can also get a 100% mortgage, but these are usually rare and tough to get approval for if not impossible.

You may need to present a guarantor for these mortgages and might also need to get mortgage insurance to ensure that the lender can recover the money if you can’t pay the loan, but as mentioned realistically 100% mortgages are unrealistic. 

How To Reduce LTV Ratio for Your Mortgage

From our discussion until now, it’s understandable that a lower LTV makes more financial sense for both lender and borrower. 

So, here are two ways to lower your LTV ratio for smoother approval.

1. Put Down A Larger Deposit 

You can save up to put down a larger deposit, or you can also consider taking gift funds from friends and family to contribute towards the deposit. 

Ensure these sources are documented so the lender can assess your application correctly.

2. Consider A More Affordable Property

If you can’t put down a large enough deposit, the best way to lower the LTV is to go with a more affordable property. 

While you might not want to aim lower on the property ladder, it’s better than dealing with extremely high interest rates.

Who Is Eligible For Low LTV Mortgages?

Theoretically, anyone can go with a low LTV mortgage should you meet the lenders criteria, and it’s usually the better option. With a larger deposit, you’ll get access to better deals, pay lower interest, and be free of the mortgage faster.

But paying a massive deposit to lower the LTV too much might not always work in your favour. If you put all your cash into a mortgage deposit, you might not have enough left for emergencies.

So, it’s advisable to go for moderate LTVs and keep a balance between the deposit and the property price. Further, since real-estate value usually appreciates over time usually, you can benefit from that when paying off the loan. 

The trick is finding the right balance for your unique situation. You must carefully assess your savings, income, and expenses to decide on a deposit, and the property price must also be factored in.

Usually, most mortgage experts suggest keeping your monthly mortgage repayment amount at less than 28% of your salary. Your mortgage shouldn’t exceed 45% of your net salary after taxes. 

Frequently Asked Questions (FAQs)

1. Do I Need To Pay Any Fees To Get A Mortgage?

Yes, getting a mortgage involves multiple fees, which usually vary from lender to lender and application to application. Some of these might be:

• Booking fees for the mortgage application usually between £99 and £250; this is non-refundable
• Arrangement fees of around £1,000, but this can also vary depending on the lender
• Valuation fees ranging between £150 to £1,500
• Solicitor’s fees, which again vary but are usually between £1,000 and £1,500
• Survey fees of around £400
• Broker and agency fees
• Bank charges 
• Stamp duty as per the property valuation

2. How Do I Decide Which Mortgage Deal Is Best For Me?

After comparing lender fees and the fine print, you can decide on the best mortgage deal for yourself depending on the LTV ratio, interest rates, and deposit amount. 

We recommend hiring a suitable mortgage advisor if you’re not confident about wading through all this industry jargon and want a guide to help you. They can assess multiple deals and determine the best one for you, given your situation.