Tips For Affordable Mortgages In London

Keeping finances under control can be tricky, especially when interest rates and inflation are constantly changing

. This can make buying a home a daunting experience, especially as a first time buyer. Buying a property is usually the biggest purchase a person will make, and a mortgage is likely to be the biggest loan commitment an individual will ever have. Although mortgage deals are generally the same all over the UK, house prices are not. For those living in the capital, we explain how to get London mortgages that won't break the bank.

Interest rates on a mortgage vary according to the size of the loan and how much equity a buyer will have in the property. To get a low interest rate it is therefore better to have a large deposit. Different sized loans to buy a home are advertised to borrowers as a percentage of LTV (Loan To Value). So, an 80% LTV mortgage will lend the borrower eighty per cent of the value of the property, which means the borrower will have to have a 20% deposit to secure the deal.

Simple maths shows that for a home that costs 100,000, a borrower will need 20,000 as a deposit to be able to borrow the rest of the money to purchase the property. In London however, because property prices are higher than anywhere else in the UK, a 20% deposit is likely to be much more than 20,000. To reduce the amount of deposit that is needed, a borrower will have to find London mortgages with a higher LTV.

A 90% LTV mortgage for example means that a deposit of 20,000 could be enough to purchase a property that has been valued at 200,000. The drawback however is that interest rates will be higher and therefore monthly repayments will be higher. What some brokers advise is that first time buyers should invest in a property that is valued at considerably less than the most they could afford.

By purchasing a lower end property London buyers will be able to put more money towards a smaller mortgage, and a smaller loan means affordable monthly repayments. As the repayments are easily affordable, borrowers can then opt to 'overpay' on the mortgage, which essentially means giving the bank more money than they are asking for each month.

Overpaying London mortgages not only clears the debt faster, the extra money actually turns into equity, so buyers will own more of their property sooner. With more equity it is then possible to remortgage with an even more favourable interest rate once the initial term of the original loan is complete.

by: Anna Stenning

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