A 90% loan-to-value (LTV) mortgage is a home loan, where you borrow 90% of the property's value from a lender. The remaining 10% is the deposit you need to save and provide in order to secure the mortgage.
The 90% that you borrow is the LTV ratio. The higher the ratio between the borrowing amount and the value of the home, the greater the risk for any lender.
This risk is priced into the mortgage and means that if you opt for an LTV ratio on the lower end of the scale, like a 90% mortgage, you'll generally pay higher interest rates compared to lower LTV mortgages.
If you want to apply for a 90% mortgage, you'll need to come up with a deposit worth 10% of the property's value. The lender will loan you the remaining 90%, and you'll repay this over the full term of the mortgage, along with interest payments.
For example: If you want to get a 90% mortgage for a property costing £150,000, you would need to put down a deposit of £15,000.
The lender would then lend you £135,000, provided you met the necessary eligibility requirements (including annual income).
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In many cases, yes first-time buyers can get 90% mortgages, provided they meet the necessary criteria, including credit history and affordability.
You'll need to save a minimum 10% deposit to be able to apply for a 90% mortgage, but remember that your affordability will determine how much you can borrow.
Lenders will assess your affordability based on your salary along with your expenses and any debt you may have.
The combination of the deposit and the amount a lender is willing to give you will determine the price of a property that you can afford.
Most buy-to-let mortgage lenders will insist on a minimum 25% deposit or maximum 75% LTV ratio (although the deposit requirement can vary from 20-40%).
You are unlikely to be able to find a 90% buy-to-let mortgage as lenders have strict affordability criteria for buy-to-let mortgages.
If you are looking to purchase a buy-to-let property, you'll likely need to build up a larger deposit.
If you're a portfolio landlord, it may also be worth speaking to a mortgage broker about your options, as certain lenders have specialised deals for portfolio landlords.
90% LTV mortgage rates are more expensive than lower LTV mortgages, because of the risk involved to the lender is higher.
This means that over the lifetime of the mortgage it’s likely to add thousands of pounds extra to your mortgage costs than if you had put in a higher deposit.
A larger deposit will mean you pay a lower interest rate, and could save thousands of pounds during a typical 25 year mortgage term.
However, while taking a lower LTV ratio mortgage should lead to a lower costs over the lifetime of the mortgage, you should consider what else your savings may be needed for when buying a property:
The costs of buying a property include stamp duty, solicitor’s fees and mortgage arrangement fees
Buying a home can involve sudden, unexpected costs, like repairs. Always keep some savings back as an emergency fund
It's also wise to keep three to six months’ worth of everyday household and mortgage payments in an emergency savings account.
You can find 90% remortgage deals, which means that you could remortgage when you have 10% equity in your property.
Equity is the proportion of your home that you own, so included your original deposit, any repayments you've made and will grow if the value of your home increases.
Most people find that it's much easier to meet the LTV requirements when remortgaging, as it won't usually involve saving and cash - as you use the equity instead of a deposit to secure your borrowing. Some lenders may allow you to use a mixture of both.
As with any mortgage, however, the rates available for remortgage at 90% LTV will be higher than if you had a lower LTV percentage. In some circumstances it may be better to wait until the equity in your home has increased, especially if a rise in property value is expected.
A broker will be able to advise you about whether now is the best time for you to consider remortgaging.
One advantage of a 90% LTV mortgage is that you will only need to provide a 10% deposit, which can help buyers to get on the property ladder sooner.
The interest rates available are also likely to be lower than 95% LTV mortgage rates, although if you can save an even bigger deposit, you may be able to access even better rates. The best 90% LTV mortgages, however, are typically available to those with a strong credit history.
90% LTV mortgage rates are cheaper than 95% LTV rates
It means you can get on the property ladder rather than spend years having to save up more of a deposit
Once you’ve paid off some of your mortgage you may be able to remortgage to a cheaper rate
The downside of a 90% mortgage is that the criteria you have to meet in order to secure a mortgage are likely to be stricter than if you were applying for a lower LTV ratio.
Lenders are very wary about the risk of negative equity and when you take out a 90% LTV mortgage, a 10% drop in house value could result in the property being worth less than the loan value.
You will pay a higher interest rate than if you put down a 15% or 20% deposit
Over the full term of the mortgage you’ll end up paying thousands more in interest compared to a lower LTV deal
The value of your property only has to fall by 10% for it to be in negative equity
Claire Flynn, Senior Content Editor - Mortgages
90% LTV mortgages are a popular option for first-time buyers. A 10% deposit is more within reach than a 15 or 20% one, and you'll get access to a better range of rates and deals compared to a 95% mortgage. ”
If a 90% mortgage isn't right for you, find out how to compare our best mortgage rates or use the links below to learn about other mortgage LTV ratios.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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