The residential mortgage market is well known for its low deposits. It’s not uncommon for people to buy a home with just 5% of the money coming from their own pocket and then borrow the remaining 95% from the lender. In the buy-to-let market, however, the landscape is different. Lenders require higher deposits from borrowers, with the sweet spot being about 75% loan to value (LTV). But is this a good number for investors, and do 75 LTV buy-to-let mortgages still hold up in 2022?
What is 75 LTV buy-to-let mortgages?
For the last 10 or so years, lenders have typically offered a maximum loan to value of 75% for buy-to-let mortgages. More recently, however, a growing number of lenders have increased that figure to 85% LTV. Still, for many, 75% is the sweet spot, but what exactly does it look like when you break it down?
A 75% LTV mortgage sees you paying 25% of the property’s value with your money and borrowing the remaining 75% from the lender. This is known as the loan to value ratio (LTV), which calculates how much you’re willing to pay compared to the amount the lender will contribute.
How is the 75% LTV mortgage rate calculated?
For example:300,000 ÷ 25 =75,000 The deposit required would be £75,000, with the remaining amount from the lender amounting to £225,000. That’s a 75% LTV mortgage.
Is 75% LTV a good mortgage loan value in 2022?
Whether or not a 75% LTV is a good mortgage loan value depends on the specificity of the mortgage and your personal circumstances. However, because 75% LTVs are seen as standard in the buy-to-let industry, it’s hard to argue against them being responsible at the very least.
When getting a mortgage for your buy-to-let, it’s important to think about the LTV. The higher the LTV, the more money you’ll need to pay back each month. As a rule of thumb, you should aim to cover as much deposit as possible to keep the interest rates down and the monthly mortgage payments lower.
While a 75% LTV might seem high for buy-to-let, it’s at the lower middle end of the typical range in residential mortgage. Essentially, a lender sees you at a lower level of risk if you’re putting in 25% of your money and they’re covering the rest.
What about a 65% LTV mortgage?
Lenders typically have different products catering to a range of mortgage deals. These often include a variety of LTVs, including 65, 75 and 85%. If you can afford a higher deposit, it’s better to go for something like a 65% LTV buy-to-let mortgage. You would essentially pay 35% for a deposit and borrow the remaining 65% while saving on the monthly payments.
How much would you save? Ultimately, it depends on the initial rate attached to the buy-to-let mortgage. Let’s look at a hypothetical 65% and 75% side by side on a 1.5% interest rate.
|Monthly repayment at 1.5%||£244||£280||£312|
As you can see, borrowing £300,000 with a 65% LTV mortgage gives you the lowest payments, saving £432 per year compared to a 75 LTV buy-to-let mortgages and £476 compared to an 85% LTV. It’s also important to remember that these prices are based on an interest-only mortgage, which is the most common type for buy-to-lets.
Lastly, even though a comparison uses a 1.5% interest rate for all mortgages, your actual rates would be different depending on the LTV. Again, the higher the deposit, the lower the interest rates.
Final words: 75% LTV
Seventy-five per cent LTV mortgages can be a good idea if you can afford the repayments. Ultimately, it comes down to whether or not the numbers work for you and your property ambitions.