Please note that owing to the credit crunch it is unlikely that you will be able to get this type of mortgage. Please treat the information below as historic which we are leaving online simply for your information.
Some mortgage lenders will allow you to borrow more than the value of your chosen property.
They may let you have a loan of anything up to 125 per cent of a surveyor’s valuation.
This can be very attractive if you have limited savings to cover solicitor’s and surveyor’s fees, stamp duty and moving in costs.
And because you have the entire mortgage term to repay the debt, borrowing a few thousand pounds extra may not add hugely to your monthly payments.
The true cost of a high LTV
But signing up for a high loan to value or LTV can be far more expensive than you realise.
Lenders often reserve their best interest rates for loans with more modest LTVs such as 80 per cent and below so you can expect to pay slightly more to borrow at this level.
The majority will also slap on an additional lending fee if you take more than 90 per cent of valuation.
These go by several names your lender may describe it as a higher lending charge (HLC), mortgage indemnity guarantee (MIG), additional security fee or mortgage advance premium.
Whatever it’s called, it boils down to the same thing: you are being charged extra for the privilege of borrowing above a certain level.
The way lenders calculate these charges varies, but for someone borrowing 100 per cent on a property valued at £150,000, around £3,000 would be typical.
Remember, too, that you will be paying interest on that extra cash.
And over a full mortgage term that soon mounts up.
How the figures stack up
Imagine you’re buying a property valued at £150,000 with a repayment loan.
If you borrow 89 per cent of valuation, or £133,500, you will avoid a higher lending fee and might be charged interest at, say, 6 per cent a year.
On this basis, you will pay £860.14 a month, or £258,042 over the full 25 years.
But if you go for a 100 per cent LTV, giving you £150,000, you might face a £3,000 higher lending charge and a higher interest rate for example, 6.5 per cent.
This will cost you £1,033.06 a month, or £309,918 over 25 years.
At this rate, go for a 125 per cent LTV, or £187,500, plus an HLC on a loan of this size typically £6,000 and you will face a monthly payment of £1,306.52, giving a 25-year total of £391,956.
In other words, borrowing £37,500 more than your valuation will actually cost you £82,038.
Keeping your costs down
that’s why it’s much better to try to save the extra cash you need.
If you can’t manage this, investigate borrowing interest-free (or at low rate) from your family.
Or, if you have no other option, consider a low-cost, unsecured personal loan over the shortest repayment term you can manage.