90% and 95% mortgages
Most people need to take out a mortgage when they want to buy a property. Occasionally you can borrow the whole amount you need for your home (a 100% mortgage) but usually lenders will give you only a percentage of the buying price and you have to find the rest of the money yourself - which is the deposit you put down.
If you need to borrow as much as you can, lenders will tell you the maximum they are prepared to let you have. The formula they use is known as the loan to value ratio (LTV). It applies to all types of mortgages and remortgages. Equity is the proportion of your home that you have paid for. Initially it'll just be the amount of your deposit.
First time buyers and anyone struggling to move up the property ladder should be able to get a 90% or 95% mortgage. These are known as higher loan to value mortgages. You'll have to put down a 10% or 5% deposit which can of course run into many thousands of pounds. Lenders will also look more closely at your income and outgoings to make sure you can afford the home loan.
The bigger the percentage you borrow, the higher your interest rate is likely to be. This is because lenders are taking a greater risk because you have a smaller stake in your property. The interest rate will be lower if you need just a 75% or 85% mortgage.
So the dilemma is whether to buy as soon as you've saved a 5% deposit, or keep saving until you have perhaps 15% to get a cheaper mortgage. At times when house prices are going up quickly, you might find you cannot save fast enough to build a bigger deposit. When house prices are coming down, you can afford to wait and keep saving.
Help to buy
The Government has several Help to Buy schemes to help struggling buyers. With the equity loan scheme and mortgage guarantee scheme, you need put down only a 5% deposit. There are more details in our Help to Buy guide.
It can be more tricky to get a high loan to value mortgage if you're buying a new build home. Often the most you'll be offered is 85% of the purchase price but this does vary from lender to lender.
You can discuss your options and find out how much you might be able to borrow by speaking to one of our expert mortgage advisers.