A fixed-rate mortgage can be a good option for those on a budget as the mortgage rate and your monthly repayments remain the same for the length of the deal. This is usually two, three or five years, but it can be as long as 10. Fixed rate mortgages can often start off more expensive than variable rate mortgages, but they will shelter you from any future rate rises and you’ll know exactly what your mortgage costs will be for the duration of the mortgage deal.
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75% LTV Mortgages
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YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. The FCA does not regulate buy-to-let mortgages for commercial and investment properties.
What is a 75% mortgage?
A 75% loan to value (LTV) mortgage is one where you borrow 75% of the value of the property you’re buying. The remaining 25% of the purchase price comes from your deposit.
Interest rates on 75% LTV mortgages are generally cheaper compared to deals that require a smaller deposit of say 5-15%. This is because lenders consider mortgages with a lower LTV to be less risky as you’ll own more of the property at the start of the mortgage and you’re less likely to slip into negative equity if property prices fall. Negative equity is when the value of your home is worth less than what you owe on your mortgage.
However, the most competitive mortgage rates are usually reserved for those with a deposit of at least 40%.
How do 75% mortgages work?
If you’re buying your first home with a 75% LTV mortgage, you’ll need to save up a deposit that’s equivalent to 25% of your property’s value. For example, if you want to buy a house worth £200,000, a 25% deposit will work out to be £50,000 and you’ll need a mortgage for the remaining £150,000.
Alternatively, if you already own a home and you’re remortgaging or moving, the 25% could be funded from the equity in your existing property. If you’re accepted for a 75% mortgage, it will most likely be a repayment mortgage. This means you’ll pay back a small part of the loan, along with some interest, each month. At the end of your mortgage term, you’ll have repaid your mortgage in full and will own your property outright.
Interest-only mortgages are less common, but only require your to pay off the interest each month. You’ll then need to repay the full amount borrowed once your mortgage term ends. Lenders are wary of offering these to homebuyers, but they are far more common for buy-to-let mortgages.
What types of mortgage rates are available for 75% mortgages?
Fixed rates
A fixed-rate mortgage can be a good option for those on a budget as the mortgage rate and your monthly repayments remain the same for the length of the deal. This is usually two, three or five years, but it can be as long as 10. Fixed rate mortgages can often start off more expensive than variable rate mortgages, but they will shelter you from any future rate rises and you’ll know exactly what your mortgage costs will be for the duration of the mortgage deal.
Variable rates
With this type of mortgage, the interest rate can change at the lender’s discretion and won’t necessarily follow changes in another financial indicator, such as the Bank of England base rate. Because the mortgage interest rate can move up or down, your monthly repayments can change from month to month as the rate moves, so it’s important to factor this into your budget.
Tracker rates
A tracker mortgage “tracks” another financial indicator, usually the Bank of England base rate. This means that when the base rate goes down, your monthly repayments will also fall. But if the base rate goes up, your monthly repayments will become more expensive, so you’ll need to consider if you can afford for this to happen. Some tracker mortgages have a ‘floor’ which means the rate won’t fall below this level, even if the base rate does.
Discount rates
A discounted mortgage is where the interest rate is pegged at a set amount below your lender’s standard variable rate (SVR), typically for a term of two or five years. For example, if your mortgage offers a 1.5% discount and the SVR is 5%, your interest rate would be 3.5%. This means your mortgage rate will rise and fall by the same amount as your lender’s SVR.
Capped rates
A capped rate mortgage is another type of variable rate mortgage, but it has an interest rate ceiling or cap. This means it guarantees your mortgage rate won’t go above a certain level, making it a good option when interest rates overall are on the rise. However, there are barely any capped mortgages on the market and the cap usually only lasts for a period of two to five years. Capped rate mortgages also tend to be more expensive than trackers and discounted rates.
What types of mortgage rates are available for 75% mortgages?
Fixed rates
Variable rates
With this type of mortgage, the interest rate can change at the lender’s discretion and won’t necessarily follow changes in another financial indicator, such as the Bank of England base rate. Because the mortgage interest rate can move up or down, your monthly repayments can change from month to month as the rate moves, so it’s important to factor this into your budget.
Tracker rates
A tracker mortgage “tracks” another financial indicator, usually the Bank of England base rate. This means that when the base rate goes down, your monthly repayments will also fall. But if the base rate goes up, your monthly repayments will become more expensive, so you’ll need to consider if you can afford for this to happen. Some tracker mortgages have a ‘floor’ which means the rate won’t fall below this level, even if the base rate does.
Discount rates
A discounted mortgage is where the interest rate is pegged at a set amount below your lender’s standard variable rate (SVR), typically for a term of two or five years. For example, if your mortgage offers a 1.5% discount and the SVR is 5%, your interest rate would be 3.5%. This means your mortgage rate will rise and fall by the same amount as your lender’s SVR.
Capped rates
A capped rate mortgage is another type of variable rate mortgage, but it has an interest rate ceiling or cap. This means it guarantees your mortgage rate won’t go above a certain level, making it a good option when interest rates overall are on the rise. However, there are barely any capped mortgages on the market and the cap usually only lasts for a period of two to five years. Capped rate mortgages also tend to be more expensive than trackers and discounted rates.
Lending criteria for 75% mortgages
Mortgage providers have their own set of lending criteria when deciding whether to offer you a mortgage. But overall, you’re more likely to be accepted if you have a good credit rating and can prove you can afford to repay the amount you want to borrow.
No lender will want you to be overstretching yourself financially as you could end up missing your monthly repayments. They will therefore want to see proof of your income and will scrutinise your outgoings. They’ll want to check how much you spend on regular household bills as well as other costs such as commuting. They’ll also look at how much you owe on credit cards, loans and so on, before deciding whether to let you borrow the amount you require.
Advantages and disadvantages of 75% LTV mortgages
Advantages
You have access to more favourable interest rates
A lower LTV means smaller monthly repayments
There’s less risk of slipping into negative equity
Disadvantages
You need to save up a deposit of 25%
You pay a higher interest rate compared to someone with a bigger deposit
75% mortgages FAQs
Can I afford a 75% mortgage?
To find out whether you can afford a 75% LTV mortgage, work out how much you earn and what you spend in a month. Compare this against the cost of your expected monthly mortgage repayments to see whether they will be affordable. You can find out more in our how much it costs to buy a home guide.
How can I save a 25% deposit?
Taking steps such as setting a budget and making cutbacks where possible can help you to save up a 25% deposit. Read our guide for more information on how to save up for a deposit.
Does my credit record matter when getting a mortgage?
Yes, your credit record does matter. Lenders will want to see that you’re a reliable borrower and that you’ll be able to keep up with the mortgage repayments. If you’ve had problems with credit in the past and your credit score is low, you are likely to find it harder to get accepted for a 75% mortgage.
Can I get a 75% remortgage?
Yes, many remortgage deals are available if you have 25% equity in your home. Most of the deals in this comparison can be used as remortgages.
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