Deposit amount and size of mortgage

I was watchng a program on Channel 5 the other day about a couple who were looking to buy a place in London. Basically, they'd saved a deposit of 5% of around 11/12K, and their budget was around 170K (I think maths may be a bit squify, but this is definately the numbers and percentage they were talking about). However, because they spent so long looking for a suitable property, they'd saved even more deposit (around 23K), so it meant they could borrow a lot more - upto about 240K. However, the amount they could borrow seemed to go up exponentially to the amount of the deposit, so the bigger deposit they had, the more they could borrow. Does this sound right? I didn't think the deposit to borrowing amount made any difference. I thought the amount depended on what you could afford based on your income, so even if you could afford a huge deposit, you still couldn't take a huge mortgage way above your salary because you just couldn't afford it.

Been a long time since I bought a house.....

Reply to
Wedell
Loading thread data ...

There are two things taken into consideration.

One is the income multiple, the other is the loan to value. For a lower loan to value, eg 10% in the second case, lenders will be prepared to offer higher income multiples. This is because if you do default on the loan, there is a better chance of them getting the money back when they repossess the house.

A lower loan to value will also get you a cheaper interest rate.

Reply to
Jonathan Bryce

Perversly, in the current market, this is not the case. RBOS, Northern Rock and First National offer greater multiples (and rates!) on their 95% to 120% loan to value products than most lenders would for a 75% loan.

Again, not as a rule of thumb. Take the likes of Nationwide, who were offering 4.37% (IIRC) on a 90% loan to value pre last Thursday.

Reply to
Matt Robertson

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.