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Expert Mortgage Advice For 90% LTV Mortgages
Work with our team of specialist mortgage brokers today and find the right 90% LTV mortgage for you.
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Finding The Best 90% LTV Mortgage Deal For Your Circumstances
For many aspiring homebuyers in the UK, securing a loan deal can be challenging. That’s especially true when they don’t have a large deposit to pay upfront. With 90% LTV mortgages, buyers don’t have to worry about that.
Luckily, these mortgages allow borrowers to provide only 10% of the property’s value as a deposit. As for the remaining 90%, they’re covered by the lender, making it easier for buyers to move forward with their purchase.
That said, 90% LTV mortgages aren’t a magical solution. They’re usually harder to secure than lower LTV mortgages and may come with higher interest rates. That’s because lenders view these kinds of loans as being riskier than others.
What Is A 90% LTV Mortgage?
A 90% loan-to-value (LTV) mortgage is a type of home loan where the lender offers 90% of the property’s value. This means the buyer only needs to pay a 10% deposit. In simple terms, the LTV ratio measures the loan amount against the total price of the property.
For example, if the house you want to buy is worth £220,000, a 90% LTV mortgage means you’ll need to provide £22,000 as a deposit (10%). Consequently, you borrow the remaining £198,000 as a loan from the lender.
This type of mortgage is popular among young home seekers, specifically first-time buyers. It’s a perfect way to get on the property ladder without having to save for a huge deposit.
However, since lenders are financing 90% of the property’s value, they take on more risk. Therefore, borrowers may face stricter eligibility criteria and a smaller range of deals compared to lower LTV options.
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How To Calculate The Deposit Value Of Your 90% LTV Mortgage?
Calculating the deposit value for a 90% LTV mortgage is simple. Since the lender covers 90% of the total price, you’ll need to pay the remaining 10%. So, you should start by determining the purchase price of the property you want to buy.
Principally, this price is going to be the base value you use to calculate your deposit. All you need to do to find out how much your 10% deposit will be is to multiply the price by 10%, which is 0.10.
For example, the property costs £120,000. Then, the 10% deposit is £120,000 × 0.10 = £12,000. So, in this case, you’ll need to pay £12,000 as a deposit, and the lender will cover the remaining £108,000 (£120,000 – £12,000).
How Do 90% LTV Mortgages Work?
For banks and lenders, 90% LTV mortgages are considered high-risk loans. That’s because they’re lending a large proportion of the total property value. In most cases, this results in asking for higher interest rates compared to lower LTV mortgages.
However, when you demonstrate your financial responsibility by securing a 10% deposit, it can reduce the need for extra security (such as a guarantor). So, while these mortgages are relatively risky for lenders, they’re still not too uncommon in the market.
Once you secure a loan and make a property purchase, you’ll begin repaying it in monthly instalments. These payments should include a portion of the amount you borrowed (the principal) plus interest charges.
Overall, you can use the help of a mortgage broker to find a suitable lender and mortgage deal. Brokers have the proper experience to guide you toward the best option to suit your financial situation. When The Bank Says No can help you secure a mortgage if you’re struggling as an expert mortgage broker.
Do You Qualify For A 90% LTV Mortgage?
Provided you have the 10% deposit, you can definitely qualify for a 90% LTV mortgage, so long as you have reasonable credit (and if you don’t, so long as you work with specialist mortgage brokers like our team at When The Bank Says No. Principally, the eligibility criteria vary from one lender to the other. Here are some essential conditions to meet:
- Affordability Checks: Lenders conduct checks to ensure you can comfortably afford your mortgage alongside other financial commitments. This may include a review of your monthly income, expenses, and other outstanding debts.
- Proof of Stable Income: You’ll need to provide evidence of stable employment (or a consistent income for self-employed individuals). Most lenders allow borrowing between three and five times your annual income.
- Good Credit Score: Lenders look for a strong credit history to ensure you can manage repayments responsibly. A good credit score increases your chance of qualifying and helps you secure more competitive interest rates.
What Are The Advantages And Disadvantages Of 90% LTV Mortgages?
Each type of mortgage has its own set of pros and cons, including the 90% LTV option. Your task is to know how such a mortgage would work for you and if it’s the best choice for your financial situation.
To help you out, here are a few advantages and disadvantages to keep in mind:
The Advantages
90% LTV mortgages can offer fantastic benefits for homebuyers, especially those struggling to save a large deposit. Below are some of the advantages that make these mortgages appealing to many:
- Smaller Deposit: With only a 10% deposit needed, 90% LTV mortgages make it easier for buyers to own a house without having to save money for years.
- Faster Homeownership: Because the deposit is small, buyers can purchase their dream home sooner before prices potentially rise further.
- Relatively Wider Availability: 90% LTV mortgages offer a wider range of deals and better rates than higher LTV mortgages (95% LTV, for example). However, compared to lower LTV mortgages, it’s the other way around.
The Disadvantages
While 90% LTV mortgages sound like a great deal, they also have some drawbacks to consider. Here are a few of them:
- Higher Interest Rates: Since they entail more risk for lenders, 90% LTV mortgages come with higher interest rates than lower LTV options. This can increase monthly repayment amounts and the total cost over time.
- Stricter Eligibility Requirements: Certain lenders may apply stricter checks to ensure borrowers can make repayments in time. This makes it harder for many individuals to qualify for a loan, especially those with unstable income or low credit scores.
- Greater Long-Term Cost: Borrowing a higher percentage of the property’s value means more interest will accumulate over the years. By the end, you might find that you paid out more than what you could have if you’d saved a larger deposit.
Frequently Asked Questions
What are the available interest rates for 90% LTV mortgages?
Interest rates for 90% LTV mortgages are usually higher than those for mortgages with lower LTV ratios. Generally, there are two types of interest rates for 90% LTV mortgages:
1. Fixed-Rate Mortgages
Fixed-rate mortgages, as the name suggests, offer consistent monthly payments by locking the same interest rate for a specific time. This period of stability usually extends between two and ten years, depending on the lender’s and borrower’s preferences.
In general, this type of mortgage is an ideal option for borrowers who want predictability in their payments. It protects them from unpredictable interest rate fluctuations, giving them peace of mind that their monthly costs will stay the same regardless of external economic factors.
Yet, once the fixed term ends, the loan reverts to the lender’s standard variable rate (SVR), which can be significantly higher.
2. Variable-Rate Mortgages
With variable-rate mortgages, the interest rate can rise and fall over time. These changes mostly depend on the variations in the Bank of England base rate or other market conditions. This means your monthly payments would increase or decrease accordingly.
In most cases, variable-rate mortgages offer lower initial interest rates than fixed-rate mortgages. As a result, they can be attractive to borrowers who are willing to tolerate some level of financial uncertainty.
Such a type of mortgage can benefit borrowers during periods of falling interest rates, as their payments will drop. That said, if the bank’s base rate increases, payments may rise suddenly. Therefore, as a borrower, you must be ready for potential changes in monthly costs.
Which choice is the better option for 90% LTV mortgages?
Choosing between fixed and variable interest rates for a 90% LTV mortgage depends on your financial circumstances and willingness to take a risk. Every option has its pros and cons, especially when interest rates are already higher than usual.
A fixed-rate mortgage may be ideal if you prioritise predictability and prefer to pay fixed monthly payments for a specific period. That’s especially beneficial if the market expects a rise in interest rates.
That said, fixed-rate mortgages might not be ideal if you think interest rates will drop during the term. If this happens, you can miss out on the opportunity for potential savings. Plus, early repayment charges may apply if you want to exit the fixed deal before it ends.
On the contrary, variable-rate mortgages might be a good fit if you can handle fluctuating payments. They give you the chance to save money in case the base rate drops. Additionally, many of these deals come with fewer penalties for early repayment if you need to switch deals.
Overall, it’s essential to consider working with a financial advisor. These professionals can help you find the best solution based on your financial situation and the current market outlook.
Can you remortgage your existing loan to a 90% LTV mortgage?
Yes, remortgaging your existing loan to a 90% LTV mortgage is possible in many cases, but it depends on some factors.
Generally, remortgage means switching your current mortgage to a new, better deal, either with your current lender or a different one. If you’ve built up at least 10% equity in your property (or can supplement it with savings), you may qualify for a 90% LTV mortgage.
Why should you consider remortgaging?
Remortgaging to a 90% LTV deal can offer a great way to lower your monthly payments. That’s especially true if the interest rates have dropped since you first took out your mortgage. Plus, if your property’s value has increased, it can help you release equity to carry out some repairs.
The bad news is that not all lenders agree to remortgage to a 90% LTV mortgage, and most will set a maximum of 85%. That’s especially true for borrowers looking to release extra funds for consolidation or home improvements.
Does a CCJ, a bankruptcy, or an individual voluntary arrangement affect your eligibility for a 90% LTV mortgage?
Yes, sometimes these issues can impact your eligibility for a 90% LTV mortgage hugely. Lenders usually see CCJs, bankruptcy, or an IVA as high-risk indicators of financial instability.
However, some lenders may consider your application if you’ve resolved these issues long ago (preferably over six years). If this is the case with you, you might face higher interest rates and stricter criteria for approval.
Can you get a 90% LTV mortgage with a bad credit score?
Based on the type of mortgage you’re applying for, lenders will have their own approval criteria and score requirements. By nature, the lower the LTV, the more flexibility lenders may have in overlooking a poor credit score.
For a 90% LTV mortgage, however, lenders tend to be more cautious due to increased risk. That said, qualifying is still possible in cases of poor credit scores if other financial aspects are in a good position.
Factors influencing eligibility include:
- Severity and Timing of Credit Issues: Recent or severe financial difficulties like CCJs, IVAs, or bankruptcy are red flags for lenders (older or less impactful problems might be easier to manage).
- Income and Employment Stability: Lenders prefer applicants with steady employment and a reliable income stream to ensure their ability to handle repayments.
- Debt-to-Income Ratio: Keeping your existing debts low compared to your income shows lenders that you can manage additional financial commitments with ease.
Get Started With 90% LTV Mortgages
90% LTV mortgages offer a fantastic chance for people in the UK to become homeowners with smaller deposits. Yet, they often have higher interest rates and more meticulous eligibility criteria.
Therefore, borrowers hoping to secure this kind of mortgage must show proof of stable income and good financial habits. While it can be challenging to meet these requirements, working with a professional advisor can help simplify the process for you.
With the right budgeting and preparation, owning your dream home can happen faster than you thought.
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