50% Deposit Mortgage
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50% Deposit Mortgage
Steven Hargreaves talks to us about 50% deposits and answers some frequently asked questions about Loan to Value.
What is a 50% Loan to Value mortgage?
It purely means that you’ve got a 50% deposit. I’ll explain Loan to Value with some figures.
If you were buying a £100,000 house, putting a £50,000 deposit down, the Loan to Value would be 50%. So, you own half the house and the lender owns the other half.
Who can get a 50% deposit mortgage?
It’s still subject to the lender’s affordability and criteria. If you’re not earning enough to support that £50,000 mortgage on a £100,000 house, you won’t get a mortgage. It would still be subject to credit checks as well.
But it is significantly easier to get a 50% Loan to Value mortgage. From a lender’s perspective, it’s all about risk.
If you only had, say, a 1% or a 5% deposit, from a lender’s perspective, there’s a significant amount of risk. If the property did get repossessed, the lender wants to know if they will get all of their money back.
With a 50% Loan to Value mortgage, they are generally going to get the money back, even if they repossessed the house and sold it at cheaper than market value/what it’s worth. So from a lender’s perspective, there’s a lot less risk in lending for a lower Loan to Value.
What are the eligibility requirements for a 50% deposit mortgage? Is it easier to get a mortgage with a larger deposit?
It is much easier, because of that risk aspect. A lender would much prefer a 50% loan because there is much less risk associated with that.
Eligibility, as I mentioned, is still related to income. It’s still down to how much you’re earning and having a clean credit file. That said, a lender would look more favourably at lending to someone with the odd missed payment or something on a 50% Loan to Value mortgage than on a 95% loan.
Lenders may relax some of the requirements around credit because of the amount of money you’ve got in the house.
How is a 50% Loan to Value mortgage repaid?
Ordinarily, it would be a repayment mortgage, but with 50% equity in the property, lenders may also consider interest-only mortgages. I had a client two months ago where it was actually a 30% Loan to Value – so he’s got 70% in the property.
He wanted to keep his payments down to a minimum and make ad hoc payments of capital, so he took an interest only deal. He’s not paying any capital, but because he gets quite a good bonus every year, he’s going to use that to pay the balance off.
That’s available on lower Loan to Values, and ordinarily not available on higher ones of 90%, 95% or even 85%. The lender wants some equity in the property before they will give you an interest only mortgage.
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What are the advantages and disadvantages of a 50% deposit mortgage?
I can’t see any disadvantages. If you’ve got 50% in savings or in equity that you’re putting down, the advantages are that it’s easier to get a mortgage and lenders are more flexible because of the risk.
But the big one is the cheaper interest rates. The lowest interest rates are always under 50% Loan to Value, and that’s again down to the risk. A lender would offer you a cheaper interest rate at 50% than at 90%. So the more deposit you’re putting in, the cheaper the interest rate tends to be and the lower your repayments.
How do I apply for a mortgage with a 50% deposit?
There’s no difference. You would still provide your pay slips, your bank statements, and proof of the deposit. You would still have to supply everything else in exactly the same way as for a 90% or 95% mortgage. It’s the same format and process.
The only difference is that from a lender’s perspective, things tend to move a little bit quicker because when it’s under 50%, they don’t always need to see the pay slips or bank statements.
How can a mortgage broker help here? Have you got anything else to add?
The benefit of using a mortgage broker is we will shop around the different banks and building sites to ensure we provide the cheapest and most suitable deal for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
Useful Links
- First Time Buyer
- 5 Percent Deposit Mortgage UK
- 50% Deposit Mortgage
- 95% Mortgage Update
- Mortgage Guarantee Scheme
- 5% deposit – The Mortgage Guarantee Scheme
- Do I Need a Guarantor Mortgage?
- First Time Buyer Joint Mortgage
- Self-Employed First Time Buyer
- Tips For Getting A Mortgage First-Time Buyer
- Buying House From Landlord
- Right to Buy Scheme
- What options do I have if I have a low deposit?
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