100% LTV Mortgages and Remortgages

22-Jun-2009

LTV stands for loan-to-value. This ratio is figured by dividing the amount you want to borrow by the amount your property is worth. If you want to borrow £90,000 and if your house is worth £100,000, then this equates to a 90% LTV mortgage. 60% LTV mortgages and lower are considered low risk to lenders while 100% LTV constitutes a very high risk.

Rates on 100% LTV mortgages were variable, fixed, capped, or discounted depending on the lender. However, as lending criteria have now become considerably stricter, 100% LTV mortgages are not currently being offered.  One of the main reasons why the 'credit crunch' occurred was due to irresponsible lending to people who could not afford the repayments.  People with a 100% LTV mortgage found that lenders would charge an above average interest rate due to the high risk nature of their mortgage. 

This vicious circle of charging the highest fees to those that could least afford it inevitably resulted in numerous people defaulting on their mortgage payments. When house prices then fell due to a low demand and a lack of mortgage products on the market, people with 100% mortgages found themselves in a negative equity situation. This means that the market value of their homes had fallen below the amount that they had left to repay on their mortgage.

The attraction of a 100% LTV mortgage was that a large deposit was not required. This gave prospective borrowers with little to no savings the opportunity to take out a mortgage regardless of the amount they were able to put down.  Borrowers with 100% LTV mortgages were taking the gamble that their properties would increase in value to the extent that they would be able to sell their properties for a profit, befoire having paid off their mortgage in full.  The gamble failed for thousands of people when housing prices fell for the first time in a decade, and they found themselves in a negative equity situation.

If you have few savings but are keen to get onto the property ladder, we would advise speaking with an adviser to get mortgage advice relating to your financial circumstances.  It's unlikely that a 100% LTV mortgage will be available again in the near future, although many higher LTV products are now reappearing for those with good credit ratings.  If you'd like help finding a qualified mortgage adviser in your area, take a minute to fill out our short mortgage enquiry form and you will be connected by an FSA-authorised adviser shortly.