Lenders have always determined what rate they are willing to offer you, largely dependent on the LTV (Loan To Value) that you are working with. That isn’t going to change anytime soon. What is constantly changing, particularly in recent months, is the LTV that they are willing to work with. A brief review of the High Street banks demonstrates clearly that many mortgage lenders have increased their maximum LTV from 90% to 95%. In turn it has heavily opened up the mortgage market, specifically for those of us hoping to get on the first rung of the property ladder. What was once a daunting task is now slowly but surely creeping further towards the grasp of a wider demographic.
The LTV is the amount you are borrowing in relation to the cost or value of the property you are purchasing, or remortgaging. It can be referred to as a LTV ratio but more often than not the figure is expressed as a percentage. The formula for calculating LTV is as follows:
LTV = (current mortgage balance / property value) x 100
Take a look at a few examples:
- You are purchasing a property worth £100,000 and need to borrow £90,000. LTV= (90,000/100,000)x100 = 90%
- You are remortgaging your property with an outstanding balance of £150,000 and your property value is £200,000. LTV= (150,000/200,000)x100 = 75%
For most people, buying a house will be the biggest and often most fruitful investment they ever make. Now aside from unfortunate circumstances or a recession similar to the one we just faced; heavily linked to the housing market, the place you call a home will often increase in value far greater than most investment funds or pension schemes.
The latest figures from the Office of National Statistics show that the UK average house price index is still below the peak of 2008, but that it is rising.
With lenders flexing their appetite to lend and increasing the LTV they are willing to work with, coupled with some record low rates and the start of a housing boom, buy a house now and get your hands on a potentially great investment. With FTB especially, faced with the decision to try and purchase a property or rent. It is essential to accept the true costs of both. Granted with renting, on the surface it may not appear as expensive as a taking out a purchase mortgage, but it is crucial to acknowledge that with renting you are paying for a service, once that service has been utilised that is as far as your money will go. With a mortgage you are paying towards owning a property outright at the end of a mortgage term. Two very distinct and disparate resulting eventualities.
According to the property website Zoopla.co.uk in the UK tenants pay on average 14 per cent more on rent than house buyers pay in servicing the cost of mortgage debt.
While we cannot ignore the anticipatory demand from first time buyers who have been wanting to buy over the past 5 years but haven’t been able to save the large deposits required by the mortgage lender’s, these LTV changes benefit home movers as well.
The Chancellor George Osborne, unveiled a help to buy mortgage scheme to kick start the housing market particularly for first time buyers and home movers. At this current time, the scheme is only available for new build properties with ties to the scheme.
As of January 2014 the second wave of the scheme will be released and ‘Help to buy mortgage guarantees’ will be available. You are generally eligible if you are a first time buyer or home mover as long as you are not planning on renting out the property. It will help you buy a home with only a 5% deposit of the purchase price and the guarantee from the lender will be provided to the lender not the borrower. Further details will be released towards the end of the year- though it already appears to have created a noticeable housing bubble.
Regardless of people carrying a fear that these moves may cause a housing bubble, the potential risks do not necessarily mean you will be worse off. If one day you see yourself owning a property, by not take advantage of the policies and acceptance of high LTV rates currently in place, it could be a big mistake. Getting your foot on the ladder while you can, may pay off big if this housing boom continues on the up. First Choice Finance has been arranging mortgages for the last 25 years, when you are ready to buy or move please visit http://www.firstchoicefinance.co.uk/Index.asp?T=90 LTV Mortgages to get no obligation help and advice and a free personal quotation.