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What is a 50% mortgage?
A 50% loan-to-value (LTV) mortgage is one where you borrow 50% of the value of the property you’re buying and the remaining half of the purchase price comes from your deposit.
The money you borrow must be repaid to the lender over the mortgage term, alongside interest on the loan.
As you’re putting down such a large deposit, you’ll own more of the property at the start of the mortgage.
This means banks and building societies regard 50% LTV mortgages as lower risk and tend to offer more attractive interest rates, so you should get a good deal.
How do 50% mortgages work?
Most of us need to take out a mortgage when we buy a new home. Every mortgage is made up of two parts – the deposit, which you pay upfront from your own funds, and the loan, which is the cash provided by the lender.
With a 50% mortgage, your deposit is half of the full value of the house. For instance, if you were buying a property worth £240,000, you’d need a deposit of £120,000 for a 50% mortgage. The lender would then offer you the remaining half (also £120,000) as a loan that would need to be paid back over time.
Most mortgages are repayment mortgages, which means that each monthly repayment is made up of a portion of the loan, plus some interest. By the end of the mortgage term, you’ll have repaid your loan in full and you’ll own the property outright.
Most mortgages last 25 years, so your repayments and interest will be paid over that period. However, you can get shorter or longer terms, depending on your financial circumstances, age and needs.
The interest rate is set by the lender, and one of the main criteria is the loan-to-value (LTV) ratio of your mortgage. In a nutshell, the more of a deposit you can save and the lower the LTV, the easier it will be to secure the best interest rates.
Many lenders offer 95% mortgages where the buyer just needs a 5% deposit, but the interest rates on these deals tend to be very high. If you’re looking at a 50% mortgage, you should be able to get a much cheaper deal.
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Eligibility for a 50% LTV mortgage
To get a 50% mortgage, you’ll need to meet the lender’s mortgage criteria. The first hurdle will be proving you can fund the 50% deposit, but you’ll also need to demonstrate that you can meet other affordability checks.
Most mortgage providers are willing to lend around 4 to 4.5 times your salary in total. If you have a large deposit but a small income, you may find that you can’t get a mortgage that’s equivalent to the whole deposit amount.
For instance, say you have £120,000 saved for a deposit. On a 50% mortgage, you’d be looking at properties worth £240,000. But if you earn £20,000 a year, lenders are unlikely to offer you a loan of more than £90,000 (4.5 x your salary). That means you’ll only be able to consider properties worth £210,000. In this case, your LTV would be 42%.
Other factors that lenders use to decide what mortgage you can afford include:
Other income, savings and investments
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Regular outgoings
Child costs (such as school fees and child maintenance)
Your credit rating
Any past debt problems
Fees for 50% mortgages
Arrangement fees
Valuation fees
Legal fees
Early repayment charges
Advantages and disadvantages of 50% LTV mortgages
50% LTV mortgages FAQs
Should I only look for a 50% LTV mortgage?
Not necessarily. How much you want to borrow will depend on your income, the deposit and also the type of property you want to buy.
You might decide you’re better off stretching yourself and getting a bigger mortgage, for instance, to get a house with an extra bedroom or garden.
Having a 50% deposit means you can choose from more mortgages, so you should find better deals.
How do I know how much equity I have in my property?
The equity in your home is the total value of the property, minus the outstanding mortgage. For instance, if your home is worth £300,000 and you have just £80,000 left to pay on the mortgage, you have £220,000 in equity.
When you take out a 50% mortgage, you should have 50% equity from the get-go. However, if your property goes up in value, for instance, because house prices rise or you make improvements, your equity rises too.
Imagine, you bought a property worth £240,000 with a deposit of £120,000. At the time, you had £120,000 in equity. If the value of the house shot up to £300,000, but you still only owed £120,000 on the mortgage, you’d have £180,000 in equity. As you pay off your mortgage, your equity grows too as you own more of the house. If house prices fall, you’d have less equity.
You could ask your lender for an estimation of how much equity you have, but if you’ve made improvements to your home or think the value has changed substantially, get it professionally valued instead.
What help can I get when choosing the right mortgage?
You can speak to a mortgage broker at Mojo who you can speak to about your options free-of-charge.
Will mortgage rates be better if I have a bigger deposit?
Yes. Lenders usually offer better rates for lower LTV mortgages, so the bigger your deposit, the better rates you will normally get. Speak to a mortgage broker who can compare mortgage deals from as many lenders as possible to find the best rate.
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