AD. If you’ve been told you’ll need a high LTV mortgage to get on the ladder, you’re definitely not the only one. With UK house prices still stubbornly high and wages not exactly racing to keep up, plenty of first-time buyers are looking at 90% or even 95% LTV deals just to get the keys to something that isn’t a shoebox.
But a high LTV mortgage comes with a few strings attached, and it’s worth knowing what you’re signing up for before you fall in love with a place.
First, a quick recap: LTV stands for loan to value. It’s the percentage of the property price that you’re borrowing. So if you buy a home for £250,000 with a £25,000 deposit, you’re borrowing £225,000, which is 90% of the property value. That’s a 90% LTV mortgage. In the UK, anything around 80% and above is generally seen as a higher LTV, with 85%, 90% and 95% LTV products classed as high LTV by most lenders.
Here are 5 need to know of a high LTV mortgage.
[Photo by RDNE Stock project]
The High LTV Mortgage
1. Your Interest Rate Will Almost Certainly Be Higher
This is the bit that can really sting. With a high LTV mortgage, you’re seen as a bigger risk because you’ve got less skin in the game. If house prices fall, there’s less of a buffer between what you owe and what the property is worth.
Lenders price that risk into the deal. So you’ll usually see noticeably higher interest rates at 90% and 95% LTV compared with, say, 60% or 75%. On paper, the difference might look like “just” 1% or so, but over a £200,000 mortgage across 25 or 30 years, that can mean tens of thousands of pounds extra in interest.
The knock-on effect is higher monthly payments. If you’re already stretching yourself to cover bills, commuting and the weekly food shop, it’s worth stress-testing your budget. What happens if your deal ends and rates have gone up again? Could you cope with another £200 a month on top?
2. You’ll Have Fewer Mortgage Deals To Choose From
At lower LTVs, lenders are queuing up to offer you their best rates. At higher LTVs, the choice narrows. You can still get a mortgage with a 5% or 10% deposit, but there’ll be fewer lenders and fewer products, especially if your credit history isn’t spotless.
Most lenders work in LTV bands. You’ll often see deals up to 60%, 75%, 80%, 85%, 90% and sometimes 95% LTV. The closer you are to the top of those bands, the less wiggle room you’ve got if the property is down-valued by the surveyor. If a lender’s valuer reckons the place is worth £10,000 less than the asking price, your LTV jumps, and suddenly you might not qualify for the deal you were banking on.
So with a high LTV mortgage, expect:
- Tighter criteria
- More scrutiny of your income and spending
- Fewer headline-grabbing “best buy” rates
It’s not impossible, just more restricted. This is where a broker can really earn their fee, especially if your situation isn’t completely straightforward.
3. You’re More Exposed If House Prices Fall
No one has a crystal ball, but if you’re buying with a 90% or 95% LTV mortgage, you’ve got much less of a cushion if the market dips.
Say you buy for £250,000 with a 95% LTV. You put in £12,500 and borrow £237,500. If prices in your area fall by 10%, your home might now be worth around £225,000. But you could still owe close to the original £237,500, especially in the early years when you haven’t chipped much off the capital.
That’s negative equity: when you owe more than your home is worth. It doesn’t matter much if you stay put and keep paying the mortgage, but it can seriously limit your options if you need to sell or remortgage.
With a high LTV mortgage, it’s even more important to think long-term. Is this somewhere you’re happy to stay for at least five years? Could your job or family situation push you to move sooner than you’d like?
4. Your Credit Score And Income Matter More
When you’ve got a chunky deposit, lenders are more relaxed because they’ve got a decent buffer if things go wrong. With a high LTV, they’re relying far more on you, your job and your track record with money.
To get accepted on decent terms, you’ll usually need:
- A solid income and stable employment
- A good credit history with no recent defaults, CCJs or payday loans
- Sensible levels of other debt, like credit cards or car finance
Most mainstream lenders will typically go up to around 4.5 times your income, sometimes a bit more in certain circumstances, but if you’re at a very high LTV they may be stricter. If your credit file is patchy, you could still find a lender, but you’ll likely pay even more for the privilege.
If you’re thinking of applying for a high LTV mortgage in the next 6–12 months, it’s worth cleaning things up now: clear down overdrafts where you can, avoid missed payments and check your credit report so there are no nasty surprises.
5. Small Improvements In Your LTV Can Save Serious Money
Here’s the good news. Being right on the edge of an LTV band is not where you want to be. Sometimes just nudging your LTV a tiny bit lower can open up much better deals.
For example, moving from 90% LTV to 85% can unlock a completely different set of rates. On a £250,000 place, that’s the difference between a £25,000 deposit and £37,500. That extra £12,500 is a lot of money, but the saving in interest over the term can also be huge.
Even on a remortgage, if your property value has risen or you’ve overpaid a bit, you might find you’ve dropped into a lower LTV band without realising. That can mean cheaper rates next time you fix.
So if you’re close to the next band down, it might be worth:
- Saving for a bit longer
- Negotiating harder on the purchase price
- Overpaying where your current mortgage deal allows
A high LTV mortgage can absolutely be a way onto the ladder in the UK, especially when scraping together a big deposit feels impossible. But it comes at a cost: higher rates, less choice, more risk and more pressure on your monthly budget.
If you’re going down the high LTV route, go in with your eyes open, know your numbers, and plan for what happens when that first fixed rate comes to an end.
