Don’t you just love jargon?
You might hear the phrase “loan-to-value” (LTV) being bandied about.
In a nutshell, this is the percentage of a home’s value that is being covered by the mortgage.
For example, if you want a house worth £120,000, and you put down a deposit of 15% (£18,000), your mortgage lender will front the other 85% (£102,000).
The LTV on that mortgage would be 85%. From the lender’s perspective, the higher the LTV, the riskier the loan. This usually means they’ll up the interest rate as a way of protecting themselves.
Help to Buy
If you’re struggling to get a good mortgage rate because you can’t get a large enough deposit, then the government’s Help to Buy scheme might be an option for you.
Help to Buy offers two main options that lets you get a mortgage with only a 5% deposit.
The first is where the government lends you up to 20% of the home’s value.
This is only available for newly built houses.
You’ll have to pay it all back of course, but the money borrowed from the scheme is interest-free for the first five years.
The second is where the government acts as a guarantor for up to 15% of the home’s value. This reduces the risk to the mortgage lender so they can offer you a 5% mortgage.
This option is available for older and newer houses.
Help to Buy is only for houses bought in England. There are similar schemes in Wales, Scotland and Northern Ireland that may work differently.
So by now you should know roughly how much you’re able to borrow, what kind of deposit you’re looking at, and a rough idea of your price range.
Next up, you need to cut back on your spending and get saving for that deposit!
Next: Step 3 - Saving for a deposit
Prev: Step 1 - Should I rent or buy?