The cheapest and best mortgage you can get is a 60% LTV (loan to value) mortgage. By putting down a deposit of 40%, mortgage lenders will see you as a very safe bet – and thus offer you the best interest rates and promotional periods.
What is a 60% LTV mortgage?
It’s when you need a mortgage for 60% of a property’s value – or, in other words, you have a deposit of 40%. So, if you want to buy (or remortgage) a property that’s valued at £500,000, you’d be looking to borrow £300,000. The remaining £200,000 would come in the form of a deposit – perhaps through an inheritance or other windfall, or equity in your current home.
What is home equity?
Put simply, home equity is the current value of your home, minus any outstanding loans and mortgages secured against it. For example, if you take out a mortgage of £180,000 to buy a home valued at £200,000, you have positive home equity of £20,000. As you pay off your mortgage, the size of that equity would increase.
The other big source of home equity is an increase in property value. Over the past 20 years, UK house prices have exploded – which means a lot of people have a relatively small mortgage for a very valuable home. If you have a mortgage of £150,000 and the value of your home has increased to £250,000, you would have an equity of £100,000 or 40% – enough to secure a 60% LTV with very low interest rates.
Now read: What is LTV or loan to value?
How to get a 60% LTV mortgage
If you have a large amount of equity in your home, or you have a huge amount of money in savings, you may be able to afford a 60% LTV mortgage.
There are two main reasons for getting a 60% LTV mortgage: you’re selling your home and moving somewhere else, or you’re staying put but want a better mortgage rate. To get a 60% LTV mortgage, start by looking at online comparison tables, and then you might consider talking to a mortgage broker to see if they can find you a better deal.
If you’re lucky enough to have a lot of equity or a large amount of savings, another option to consider is remortgaging to borrow more money from the bank – and then using that money to renovate or extend your home. Mortgages – especially at 60% or 65% LTV – are one of the cheapest ways of borrowing money.
Now read: Should you renovate your home or move?