The high loan to value mortgage and the high value mortgage. These are two similar-sounding mortgages, but they couldn’t be further from one another if they tried.

If you aren’t sure what’s the difference, and were told or found out you needed either the high loan to value mortgage or a high value mortgage, then this guide is for you. You’ll learn what the high loan to value and high value mortgages are, when they’re used, as well as when you’d need each one, right here:

What is a High Loan to Value Mortgage?

A high loan to value mortgage simply means a mortgage with a high loan-to-value ratio.

Loan to value (LTV) refers to how much the loan covers over the property’s value.

Loan to value example:

When you first buy a property, you usually pay a deposit. This brings the LTV down. If your deposit is 20% of your property’s value, then you’ll need a mortgage that covers the other 80%. In this instance, the LTV is 80%.

Now, you can also increase the value of your home after you buy it, which would once again lower the LTV. Say you remodel your home, and it’s now worth 30% more than it used to. This would take a £200,000 property to £260,000. You have a loan for £160,000. The new LTV then would be:

LTV = loan amount / property value * 100

LTV = £160,000 / 260,000 * 100

LTV = 61%

The lower your LTV, the less of a risk your property is to mortgage lenders. If you default on the remaining loan, the lender has a good chance of reclaiming their money when your property is sold.

Of course, with the increase in prices over the years, putting forward a 20% deposit is becoming increasingly more difficult, especially for first-time home buyers.

That’s why there are so many government-backed schemes in place to help. More lenders are also offering high loan to value mortgages.

Today, you can get a property with a 10% deposit, which means you’d need a high loan to value mortgage that covers the other 90% of the property’s value. While more common, not all lenders offer mortgages for such a low deposit, so you’ll need a specialist mortgage broker to help find you the lenders who do offer these mortgages.

Using buying schemes to help you buy your property

The other way you can avoid getting a high loan to value mortgage is to go through a buying scheme. One of the most common today is the New Build scheme, where you can buy a property for less while retaining 100% of the ownership.

For example, you can get a property at a 20% discount. This discount is paid for and owned by the government. You then need to get a mortgage for only 70% of the property (the 20% government-owned portion and a 10% deposit are already taken care of). This means you need a lower loan-to-value mortgage.

With the New Build scheme, you need to pass on the 20% discount. This means that as your property increases in value, so too does the government’s share. That’s how it’s paid for. You don’t need to pay off the loan yourself until you sell the property. When you sell, it also needs to be to another first-time buyer.

What is a High Value Mortgage?

A high value mortgage is different from a high loan to value mortgage, so you’ll need to be careful when searching for deals and brokers.

Unlike a high loan to value mortgage, a high value mortgage helps you secure a property that’s considered high value. They are needed for properties over £500,000 in most of the UK and over £1 million if you’re buying in a major city like London.

Many of the requirements for a high value mortgage are actually the opposite of a high loan to value mortgage. This is because the higher value properties are typically only purchased by:

• Wealthy persons
• Buy-to-let investors
• Foreign buyers
• Entrepreneurs

What sets the high value mortgage apart from other residential mortgages?

While at the end of the day, a high value mortgage works very similar to any other residential mortgage, there are a few key details that set them apart.

1. High deposit: You’ll need a much larger deposit to secure a high value mortgage, making it the opposite of a high loan to value mortgage. With a high value mortgage, you’ll need around 20 to 40% of the deposit upfront.
2. Lower debt-to-income (DTI): You’ll need a lower debt-to-income ratio than traditional mortgages, especially if the high value property you want to buy is a second or third property.
3. Higher stamp duty: You’ll need to pay a much higher stamp duty on your property, especially if it’s a second or subsequent property.
4. High income: Whether your income is through a salary, dividends, or capital, you will still need to prove that your incomings are high enough. The 4.5x mortgage cap still applies.

Interest only high value mortgages

Another key way that high value mortgages differ is in your freedom to switch to an interest-only mortgage for a short period. With high value mortgages, lenders are less likely to agree to the swap. Instead, you may be able to get an interest-only deal for only a fraction of the loan amount. For example, you may be able to lower repayments by having 50% of your loan swap to interest-only.