An 80% loan-to-value (LTV) mortgage is any home loan, where you have a 20% deposit to put down on a property and therefore need to borrow the remaining 80% from a mortgage lender.
The ‘80%’ refers to the ratio between the amount borrowed (80%) and the total cost of the house (100%), which is also known as LTV.
If a property is worth £100,000, with a deposit of £20,000 and a mortgage of £80,000 the LTV of the mortgage is 80%
With an 80% mortgage, you put down a 20% cash deposit – this will usually be from your personal savings or the equity you've built up in your current property.
You'll then borrow the remaining 80% from the bank or building society who is providing the mortgage. You'll repay this amount alongside interest over the course of the mortgage term. Terms vary based on your age, circumstances and preference but a typical residential mortgage term in the UK is 25-30 years.
The table opposite shows the deposit amount needed to get an 80% LTV mortgage based on properties of different values.
|Property value||Deposit amount (20%)||Mortgage loan amount (80%)|
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The key thing you'll need to be eligible for an 80% LTV mortgage is a deposit worth 20% of the property Value. Lenders usually need you to prove that your deposit funds came from an approved source.
For your mortgage application to be accepted, you'll also need to meet the lender's other criteria. This will usually be:
Income – you can normally borrow around 4-4.5 times your annual income
Expenditure – your lender will review your outgoings and spending habits to determine if you can afford the repayments
Credit history – the lender will want to see if you are reliable at managing debt and will check your credit history in order to do this
You'll also need to provide the necessary supporting documentation, such as proof of income and bank statements, and be within the minimum and maximum age limits for the specific mortgage product.
You'll usually get access to better rates than with a higher LTV mortgage, such as 90% LTV
You'll pay less in interest over your full mortgage term than if you borrowed more than 80%
You're less likely to fall into negative equity compared to a higher LTV mortgage
A 20% deposit is easier to save up than 30 or 40%, so you might be able to buy your home more quickly and possibly keep some money back for home renovations or an emergency fund
Buy-to-let mortgages are for people who are buying or remortgaging a property to let to tenants for a profit. They are usually taken as interest-only mortgages and tend to have higher interest rates and fees than residential mortgages due to their commercial intent.
80% LTV is likely to be the maximum loan size available for buy-to-let mortgages, and few lenders will offer this. Most will require a deposit greater than 20% - usually 25-40%.
Like residential mortgages, the lower your LTV the cheaper the mortgage rates you’ll get - so it’s worth paying as big a deposit as possible.
Whether or not you get a 80% LTV buy-to-let mortgage, the lender will want to make sure that the rental income the property can achieve will cover 125% to 145% of the monthly interest payments for the amount you want to borrow.
Buy-to-let mortgages are not normally regulated by the Financial Conduct Authority (FCA) as they're seen as products for businesses rather than consumers.
Claire Flynn, Senior Content Editor - Mortgages
A 20% deposit might sound like a lot, but if you're able to save it up or build that amount of equity in your home, an 80% LTV mortgage will generally give you access to better rates than a higher LTV ratio. ”
Unsure if an 80% mortgage will work for you? Learn about how to find our best mortgage rates or use the links below to find how about other mortgage LTV ratios.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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