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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
A 60% loan to value (LTV) mortgage is available when you have a deposit of at least 40% of the value of the property you’re buying or remortgaging.
This means you'll be borrowing the remaining 60% of the property value from the lender.
LTV shows how big your deposit is relative to the value of the property. The bigger your deposit, the lower your LTV ratio.
A 60% LTV ratio is considered quite low, so you'll generally be seen as less risky by the lender which should help you access better mortgage rates.
With a 60% LTV mortgage, you put down a deposit worth 40% of the property value – the remaining 60% is funded by the lender as a mortgage. The actual mortgage works the same as any other mortgage – you repay the amount you've borrowed over a predetermined time period (mortgage term).
Some mortgages are repaid on an interest-only basis, although if you're buying a residential home, it's more likely that you will have a capital repayment mortgage, where you repay an element of the loan, and the interest each month. If you are providing a 40% deposit, the interest rates available to you will be some of the best on the market. The table opposite shows how much the deposit and loan amount would be for a 60% LTV mortgage for a range of different property values.
|Property value||Deposit amount (40% of property value)||Mortgage loan amount (60% of property value)|
A key reason to aim for a 60% mortgage is that the lower your LTV ratio, generally the lower your interest rate will be. This is because the lender will consider you a less risky borrower and can loan you money at a more competitive rate.
A 60% LTV mortgage is typically one of the lowest thresholds offered by lenders, which means these deals will likely have some of the best and cheapest interest rates available.
Plus, putting down a 40% deposit as opposed to a smaller one, means you'll have to borrow less. Borrowing less means you'll pay less in interest over the course of your mortgage. You may also be able to repay it more quickly than if you borrowed a greater percentage of the property value.
Interest rates rose across the board throughout 2022, so opting for a lower LTV ratio (if you're able to save up a larger deposit) will help you access better interest rates and reduce the amount you'll pay in interest overall.
To be eligible for a 60% LTV mortgage, you will need to save up a deposit of 40%, which is not going to be easy for most buyers to save.
Most people raise the money for a 40% deposit when they've already owned property before, typically from the sale of their home, or savings built up over many years. These mortgages are generally more difficult to get if you're a first-time buyer.
Of course, you'll also need to meet the lender's other criteria, which, in addition to deposit size, often includes:
Income - you can typically borrow around 4 to 4.5 times your annual income
Expenditure - lenders will look at your spending habits and outgoings in addition to your income to check you can afford the monthly repayments
Credit history - checking your credit history allows lenders to see if you have a history of managing debt well
If you've got bad credit and are looking for a mortgage, having a larger deposit may help encourage some lenders to consider you as this will reduce the risk slightly. However, having a 40% deposit is still not a guarantee that you'll be accepted.
If you've got bad credit, it's worth taking steps to try and improve that (by taking out a credit building card for example) and speaking to a mortgage broker who can help identify lenders who may be willing to consider you.
With mortgage deals, there are two main types of mortgage rate you can get – fixed and variable.
A fixed mortgage rate means your interest rate (and therefore monthly repayments) will be fixed for the duration of your deal.
Fixed rate deals are often popular as borrowers have peace of mind that their repayments will stay the same for a set period of time, even if interest rates rise. This makes it a good option for those who need to stick to a specific budget.
However, the downside of a fixed rate mortgage is that if interest rates decrease during your deal, you won't benefit from a reduction in your monthly repayments.
Fixed rate deals typically have higher rates than variable rate deals, such discount and tracker rates. This is due to the fact that they will remain the same over the deal period, while discounted and tracker rates are subject to change.
Two-year fixed-rate mortgages and five-year fixed-rate mortgages are the most common deal lengths, but you can get longer deals.
How long a deal you should opt for depends on you and your personal circumstances, including how long you expect to stay in the property for and whether you'd like repayments to remain the same for a longer period of time.
A variable mortgage rate is subject to change during your deal. This means your monthly repayments won't necessarily the stay the same - they may increase (or decrease) depending on interest rate fluctuations.
The main types of variable rates are discounted, tracker and standard variable rate (SVR).
Discount mortgage – the interest rate is pegged at a certain level below the lender's SVR. It will rise and fall in line with the SVR
Tracker mortgage – the interest rate is set a specific level above an external financial indicator, often the Bank of England (BofE) base rate. A tracker mortgage rate will rise and fall along with the base rate
SVR – you'll normally go onto your lender's SVR once your initial deal comes to an end. This is often higher than the rate you'll have been paying so it's often worth remortgaging in order to get the best deal, unless your moving or only have a small amount to pay off on your mortgage.
The main thing to remember with variable rates is that, even though the rates can appear lower than fixed deals at first glance, your monthly repayments could increase substantially if interest rates rise. Make sure you could afford repayments if this were to happen.
A low LTV ratio generally allows you access to better rates
You'll have borrowed less compared to a higher LTV ratio, meaning you'll pay less in interest overall
You're less likely to fall into negative equity compared to if you put down a smaller deposit
It can take a while to save up a 40% deposit , so you may be able to purchase a home more quickly with a higher LTV deal
You may be better to hold some of your deposit money back for home renovations or an emergency fund
In the current market, interest rates are fairly high, so a 60% LTV mortgage is a good option if you're able to raise the 40% deposit. This is because you'll generally get access to better deals than with a higher LTV mortgage”Kellie Steed, Mortgage Content Writer
Unsure if a 60% LTV mortgage works for you or is a 40% deposit a bit out of reach right now? Take a look at how other LTV mortgages compare by using the links below. Or compare our best mortgage rates.
Take a look at our articles below or check all of our mortgage guides.
Last updated: 27 March 2023