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80% Loan to Value Mortgages

For those looking to purchase a property, the more you can place as a down payment, the better your rate on interest will be.

For those who have 20% of the total funds to buy a house, you may be able to find a good mortgage deal, after a little digging.

Find out more about 80% Loan to Value Mortgages and how they work.

What is an 80% Loan to Value Mortgage?

An 80% Loan to Value mortgage is where the borrower seeks to loan 80% of the money needed to fund a property purchase. They have 20% of their own funds to use as a deposit.

 80% Loan to Value Mortgages are widely available in the UK mortgage market. This is because house prices are generally high and still growing, which makes it very difficult, especially for first-time home buyers, to raise a large deposit.

If you were able to save for a larger deposit (say 25% or higher) then you would be able to secure a mortgage deal with a lower interest rate. However, there are plenty of good deals out there for people with 20% of their own funds for a home purchase.

Am I Eligible for an 80% Loan to Value Mortgage?

• You will need at least 20% of the total funds to buy the property you want and to secure the 80% LTV mortgage.
• You will need to pass an assessment by the lender, specifically they will be checking your income and monthly expenditures, to make sure you can afford to make the monthly mortgage payments.
• You will need a good credit score and history of paying your bills and credit card bills on time. Read our Guide to Improving your Credit Rating for tips on how you can boost your current score.
• You will need to be legally permitted to live and work in the United Kingdom, you will also need to be over 18 to apply, in the overwhelming majority of cases.

How is an 80% LTV mortgage Repaid?

Mortgages of 80% LTV can be paid on a repayment basis. This is where you pay off a certain amount of capital every month, as well as meeting the mortgage interest (i.e. the lender’s monthly cost to borrowers). The minimum LTV required for an interest-only mortgage is around 75%, so in order to secure this kind of deal, you will need not only a credible repayment vehicle, but you will also a bigger deposit.

In terms of paying off the interest, you may be able to find discounted interest deals on mortgages as well as fixed term, capped or tracker rate deals. Take a look at our Guide to Mortgage Types for more information.   

Please note: If you start off your mortgage on an 80% LTV loan, in a few years’ time you may be able to remortgage for a lower loan to value mortgage, resulting in a lower interest rate payable. Take a look at our Guide to Remortgaging for more on this.

What are the Advantages of an 80% LTV Mortgages?

• Interest Rates – If you have managed to generate a 20% deposit, the interest rates available are cheaper than those offered to borrowers applying for 90% LTV loans.
• Discounted Offers Available – As you have a significant amount to place as a deposit, it is possible to secure a mortgage with a discounted rate of interest. This can help first-time buyers and those on a tight budget free up some money in their monthly budget. However, these discounts on interest are available for a limited time only. You must make sure you can afford the mortgage when the discounted period ends.

What are the Pitfalls of 80% LTV Mortgages?

• Fewer Mortgages Available – Not all lenders will consider mortgages of 80% Loan to Value, so your choice of products may be limited somewhat.
• Interest Rates Higher Than Other Types – Those with a 20% will likely pay more in interest than those with 25% deposit funds.
• Negative Equity a Risk – Lenders may see your application as more of a risk to them than applicants with more equity and higher deposits. If the housing market takes a dramatic turn, those who are closer to the 100% loan to value threshold are more at risk of going into negative equity. Take a look at our Guide to Negative Equity for more on this.

Let’s Look at an 80% LTV Example

Joni is a first-time buyer. She needs a mortgage for £120,000 and has found a lender who will accept her. She can get a two-year fixed deal for 4.2% and the fees are relatively low for set up. Joni takes the deal because she knows that she will be able to remortgage to a better rate, once she has built up some equity.

What are the Alternatives to 80% LTV Mortgages?

• Help to Buy – If you are struggling to raise a deposit, you may wish to enlist the help of the UK government by opening a Help to Buy Cash ISA. This can help you put more money down on your next home purchase and hopefully secure a lower-cost mortgage.
• Guarantor Mortgages- If you have a family member who is willing to sign as a guarantor for your mortgage, you may be more successful in securing a loan with your current deposit amount. Guarantor mortgages are also great for those with less-than-perfect credit scores, as you will have a ‘back-up’ party who can ensure the mortgage always gets paid. Take a look at our Guarantor Mortgage Guide here.
• Joint Mortgages – Joining with a friend or family member can help you raise your deposit amount and borrow more funds. See our Joint Mortgages Guide.
• Shared Ownership – If you are eligible, see if you can purchase part of a home through a Shared Ownership scheme. See our Shared Ownership Guide for more.
• Family Offset Mortgages – If your parent or a friend has an Offset Mortgage, through some deals, they may be able to help you with raising your deposit, whilst still maintaining access to their savings.

Get in touch with a mortgage broker today, they can offer you a free, no-obligation quote.