Research suggests that LTV is a significant driving factor in increasing mortgage interest
First-time buyers are being priced out of the property market
The average house price in the UK is now £278,000, which is 17 times the average salary. This means that first-time buyers need to save a deposit of at least £27,800 before they can even think about getting a mortgage.
However, many first-time buyers are struggling to save this much money. In fact, a recent study by Aldermore Bank found that 40% of first-time buyers have less than £10,000 saved for a deposit.
This is partly due to the rising cost of living. In the past year, the cost of food, energy, and transport has all increased significantly. This has made it harder for first-time buyers to save money for a deposit.
LTV is a major factor in determining mortgage interest rates
Loan-to-value (LTV) is the ratio of the loan amount to the value of the property. The higher the LTV, the greater the risk to the lender. This is because the lender is more likely to lose money if the borrower defaults on the loan.
As a result, lenders charge higher interest rates on loans with high LTVs. This is because they are taking on more risk.
For example, a borrower with a 90% LTV will pay a higher interest rate than a borrower with a 75% LTV. This is because the lender is taking on more risk by lending 90% of the value of the property.
First-time buyers are disproportionately affected by high LTVs
First-time buyers are more likely to have high LTVs than other borrowers. This is because they typically have less money saved for a deposit.
As a result, first-time buyers are more likely to pay higher interest rates on their mortgages. This can make it even harder for them to afford a home.
The government has introduced a number of schemes to help first-time buyers get on the property ladder. These include the Help to Buy scheme and the Lifetime ISA. However, these schemes are not available to everyone.
What can first-time buyers do to reduce their LTV?
There are a number of things that first-time buyers can do to reduce their LTV. These include:
- Saving a larger deposit.
- Getting a guarantor.
- Taking out a smaller loan.
By reducing their LTV, first-time buyers can reduce the interest rate on their mortgage. This can make it easier for them to afford a home.
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