First-Time Buyers 'Increasing Thanks To Higher LTV Mortgages'

While many parents are helping their kids to get a foot on the property ladder there is now another option available, which could ease the burden.

First-time buyers could see an increase in numbers due to the reintroduction of higher loan-to-value (LTVs) mortgages, it has been asserted.

With banks such as Abbey currently offering 85 per cent home buying loans, experts are predicting that property purchasing numbers will rise and reinvigorate the housing market.

Such deals should encourage more people, who could be currently renting or living with their family, to buy their first home, according to an independent financial advisors firm.

"People are actually looking at the market and therefore if there are more buyers then it means that eventually the prices are going to at least stabilise," said the head of mortgages at the organisation.

An LTV is a ratio that depicts the relationship of a loan amount with the value of a property. This ratio is obtained by dividing the amount of a loan by either the sale price of the property or the property’s appraised value. The lower of the two amounts is used.

A mortgage can be said to have a high LTV when the amount of money lent is high in relation to the down payment of the borrower or the equity held in the property. For example, if a borrower provides a down payment of five percent and the mortgaged amount is 95 percent of the sale price, the loan is considered to have a high LTV.

Lenders typically view loans with high LTVs as more risky than those in which borrowers offer more substantial down payments or have larger amounts of equity. From a lender’s point of view, a borrower with less money invested in a home has less to lose by defaulting on a loan than an individual who has given a larger down payment or who has significant equity in a property. Often, lenders require borrowers of loans with high LTVs to obtain mortgage insurance.

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