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75% Loan to Value Mortgages

In order to buy a property, you will need to put a certain percentage of your savings down as a deposit. If you have 25% of the total funds needed to buy the property you like, you will be in the middle range of Loan to Value thresholds. This is a good thing.

Find out why this is and how 75% Loan to Value mortgages work.

What is a 75% Loan to Value Mortgage?

A 75% Loan to Value mortgage is where the potential borrower is seeking 75% of the total money needed to buy a property. They will have the remaining 25% saved as a deposit.

For potential borrowers in this position, you should be able to find a mortgage deal charged at a competitive rate, as almost all mortgage providers will have a product available for people with 25% available for a property down payment.

Your risk of falling into negative equity, although still possible, is more unlikely for those with a considerable deposit. For this reason, 75% Loan to Value mortgages offer better interest rates than those seeking an 80% LTV mortgage or higher.

To find out more about Negative Equity and how you can manage the situation, should this happen to you, take a look at our guide here.

Am I Eligible for a 75% Loan to Value Mortgage?

• To get a 75% LTV mortgage, it goes without saying that you will need 25% of the money to buy your chosen property. If you are a first-time-buyer, or homeowner and you would like to find out more about government schemes that can help you boost your deposit total, take a look at our Help to Buy Guide.
• Your income and monthly expenditures will need to pass a lender affordability check, to ensure you can afford to pay the mortgage every month.
• You will also need a good credit score. You can find your score on a credit reference agency website and improve your rating by following some of the tips in our Guide to Improving your Credit Rating.
• With practically all mortgage lenders, you will need to be over 18 years old and have the right to live and work in the UK.

How is a 75% LTV Mortgage Repaid?

With mortgages of 75% of the property price, you can take out either a repayment or interest-only mortgage. With repayment mortgages, (where your monthly payments pay towards both the capital and interest of the loan) you can build equity. Over time, your loan-to-equity threshold will gradually fall. Allowing you to remortgage for a lower interest rate, provided your financial circumstances (such as income) stays the same.  

Take a look at our Guide to Remortgaging for more information.

If this sounds like an attractive prospect for you, you could try and secure a mortgage deal which allows you to make overpayments some months, without incurring an early repayment charge. You can also choose to pay back the interest at a fixed or variable rate. To see more on the different ways in which mortgage holders can make their interest payments, read our Guide to Mortgage Types.

Getting an interest-only deal may be more difficult. To secure one of these, you will have to prove to the lender that you have a credible repayment vehicle to pay back the mortgage, in full, at the end of your mortgage term, as well as a high minimum income (around £75,000 pa, in many cases).

What are the Advantages of a 75% LTV Mortgage?

• Favourable Interest Rates – You may be able to access lower rates of interest with a deposit of 25%, rather than a 10% deposit only. You will still be checked for your mortgage affordability, however in the case of mortgages, it pays to save up as much as you can to use as a property down payment.
• More Mortgage Choice – Most, if not all mortgage lenders will have mortgage products available to those with a 25% deposit. You can choose between many different rates on interest, overpayment thresholds and those that come with or without administration fees. You may need the help of an independent mortgage advisor, to help you sift through the choices and find the best deal.

What are the Pitfalls of a 75% LTV Mortgage?

• Pay More in Interest – While interest rates are good for those with 75% LTV mortgages, a higher deposit amount should give you access to even better mortgage interest rates.
• Affordability – While there are more mortgage products available to those with 25% deposit rather than 20% or lower, you will still have to pass the lender’s affordability checks. You may be rejected for reasons other than you deposit amount. For instance, your income may not be steady or high enough to assure the lender that you can pay every month.

Let’s Look at a 75% LTV Example;

Brenda has a 20% deposit for a house. She has looked at mortgages and has found a deal for 6.49%. Just as she was about to apply, she came into a bit of money and now has a 25% deposit (for a house that costs £150,000). She’s looking at mortgages for 75% LTV and has seen a deal charging 5.49%. Brenda needs to decide if she wants to use the extra money for a larger deposit or a new bathroom when she moves in. If she takes the 6.49% deal, her monthly mortgage payments will be £87 more than if she took the 5.49% mortgage. Brenda decides that she can wait to renovate the home and would prefer the savings in her monthly bills instead.

What are the Alternatives to 75% LTV Mortgages?

• Help to Buy – At the time of writing, the UK government have the Help to Buy initiative, for those who need help raising a deposit for a home.
• Guarantor Mortgages – You may be able to find a guarantor mortgage deal, where a family member or friend can act as a guarantor for your mortgage, which may make you a more attractive prospect to some lenders. See our guide for more on this.
• Joint Mortgages – By joining with another person, you could increase your deposit amount and gain access to a higher mortgage loan amount. See our guide for more details.
• Shared Ownership – If your deposit is small, you could consider taking a part own/ part rent agreement with a housing association. See more about how the scheme works in our guide.
• Family Offset Mortgage – If you have a family member with an offset mortgage, with some contracts, they can use their savings to boost your deposit for a property.

Independent mortgage brokers are on-hand to offer you free quotes and mortgage advice, to help you find the best deal. Get in touch today.