Mortgages.scot

The short answer? It depends! Now for the long answer :)

When considering how much to borrow lenders use a term called LTV or Loan to Value. When researching mortgage deals it will become clear that the best rates are reserved for lower LTVs.

Want a 100% Mortgage?

Simply put that would mean if the property is valued at £200,000 the borrower wants to borrow £200,000.

There are far fewer lenders offering 100% mortgages than 20 years ago when they were available everywhere. But there are still some options out there. They are mostly available to first-time buyers and many come with additional requirements such as the requirement for parents to act as guarantors in case their children miss payments. Some even require parents or family members to put up some form of collateral such as cash or a charge over their property.

If that is not enough to put borrowers and/or their families off 100% mortgages there are other drawbacks including;

1. The interest rate is almost always higher than other mortgages.
2. Someone else who has savings to use can offer slightly more and purchase instead.
3. If the value of the property falls it may quickly be worth less than the amount still owed, this is called negative equity.
4. If a family member supports the mortgage they could lose money, even their home if they act as a guarantor.

Saving for a deposit

To avoid involving family members the best way forward is to save for a deposit. Most lenders will lend up to 95% of the property value. Of course, the higher the deposit, the lower the mortgage and that brings benefits.

Whilst a 100% mortgage will cost the most, a 95% mortgage will cost slightly less. Drop below 80% and the difference in rates can be quite substantial. The lower the Loan to Value the lower the interest rate will be as lenders are less likely to lose money if something goes wrong.

The Mortgage Guarantee Scheme

In 2021 the Government introduced the Mortgage Guarantee Scheme. It was a scheme introduced during COVID to help increase the supply of mortgages. It is available until June 2025. During COVID there were the least amount of high LTV mortgages available so this scheme is designed to give the lenders more comfort to provide them.

It requires the borrower to provide a 5% deposit and the government will provide a guarantee that compensates the lender should the property be repossessed and losses occur. The guarantee will last for 7 years after which there should be far less chance the borrower will default or the lender will lose money if they do.

More information is available here.

Also bear in mind that how much you can borrow is dependent on the property valuation, more on that in a later section.