How to get the best mortgage deal What a mortgage lender will lend you
Mortgage deals let you borrow up to a percentage of the property's value
Some lenders use a multiple of your income to work out how much they will lend you. Visit the mortgage calculators offered by Which? Mortgage Advisers to find out how much you might typically be able to borrow according to this method.
Most mortgage lenders now use affordability calculations to make this decision instead. This is where they look at your income and outgoings to work out how much you can afford to pay back.
What percentage can you borrow?
The 'loan-to-value' or LTV is the amount you are borrowing in relation to the cost of the property you are buying. It’s expressed as a percentage of the property's value. So, if you are buying a property for £200,000 and borrowing £180,000, your LTV is 90%.
All deals allow borrowing up to a maximum LTV – 75% or 90%, for example. In general, the lower your LTV, the lower the mortgage rate and the cheaper the deal overall you will be able to get.
Higher-lending charges
If you're putting down a deposit of 25% or less, you might have to pay a higher-lending charge (HLC), which can amount to hundreds or even thousands of pounds.
These charges are typically used by the lender to buy insurance to protect itself against you defaulting on your repayments. They usually apply to high-LTV mortgages as the higher the LTV, the more likely it is that you will default. However, most lenders no longer charge them.
HLCs are normally calculated as a percentage of the portion of the loan in excess of 75% of the property’s value. So, if you are borrowing £180,000 to buy a house costing £200,000 (90% LTV), you'll pay an HLC on £30,000.
A typical charge might be 6% of this amount so you would pay £1,800.
You should factor in the cost of higher-lending charges when choosing your mortgage. Avoid adding the charge to your mortgage, if possible, as you will end up paying interest on it for the life of the loan.
For more on mortgage fees, see the next page of this guide.
Mortgage advice
We believe you should take independent advice before choosing a mortgage. The Which? Group offers an independent mortgage advice service that looks at every mortgage from every available lender. You can also find an independent mortgage adviser using the Unbiased website.
If you're looking to find out what your repayments would be at different interest rates, or want to get an idea of how much you could borrow, try using the mortgage calculators offered by Which? Mortgage Advisers.
