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The return of the 85% LTV mortgage!

I was very surprised when my mortgage broker called me to tell me the news that one mortgage lender, Kensington was now offering 85% Loan To Value Mortgages.

When The Mortgage Works (TMW) were the first to break ranks and offer their 80% LTV product last year I had expected to see a few companies follow suit but none did! So it was a real shock when I discovered that Kensington had jumped straight in with an 85% LTV Mortgage this week.

The figures on this seem to change daily but the upshot is they will offer 85% LTV mortgage, at a 2 year fixed rate of 5.99% with a rent calculation of just 120%.

Before you get too excited there are a few drawbacks.
• The minimum loan is £90k
• The borrower needs to be able to prove an income of at least £30k

But the main drawback seems to be that the reversionary rate (the rate after the 2 year fixed period) is 5% above Libor. For me this is a big potential worry. Imagine the situation: You have purchased a property with an 85% LTV mortgage. Interest rates rise over the next few years such that you are on an effective mortgage rate of 7% or 8% after the two year fixed period. If value have now increased much in this time period it will be very hard to re-mortgage to a cheaper rate unless there are more lenders in the market offering 85% LTV Mortgages. This means that you could well be stuck with this very high rate.

I am not a financial advisor and so cannot offer any financial advice, but personally I would not bother with a fixed rate mortgage right now if it was only for two years. I don’t think we are going to see much of a change in the Bank of England base rate because we need the economy to recover before rates can go up. However in the medium to long term there is no doubt that rates would go up so I would consider fixing the interest rate for say 5 years to minimise uncertainty.

We shall have to wait and see if any more lenders come to market with 85% LTV mortgage products! I would be interested to hear your thoughts on this. Post your response here.

Kind regards,

Simon Zutshi
Founder property Investors network

5 thoughts on “The return of the 85% LTV mortgage!

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  2. Spike Reddington

    It could well be a sign of green shoots of recovery in the financial sector’s willingness to lend.

    My guess is that we’ll see some more 80% and 85% offers popping up in competition, hopefully with better terms on the reversionary rate.

  3. Seb H

    Well I guess the caution is not only in the rate change after the fixed term but also:
    – Can you get the 120% rental yield criteria?? Even if you do can it be sustainable.
    – Is this rate 85% LTV not for 1st time buyers only, as sometimes the LTV varies.

    So where do people who want to buy-to-let get funding????? Who knows???

  4. Justin

    Beware that it seems that a lot of kensington valuations come in very low. It happened to me and my broker said a lot come back well below asking. I lost the property because of the delay….

  5. Frank

    I think I agree with Simon. This scheme by KMC is trouble and I would advice anyone being tempted to look deeper. Personally? i wouldnt touch it witha barge ball! Frank