What is a mortgage over 100% LTV?
Most mortgages cover part of a property's value, with the buyer putting down a deposit to make up the rest. A mortgage exceeding 100% loan to value (LTV) allows you to borrow more than the property's current value.
These products have drawn criticism over the years, with some arguing they encourage risky borrowing. Before the 2007/2008 financial crisis, certain lenders offered deals as high as 130% LTV, meaning the borrower started with 30% negative equity from day one. Stricter regulatory measures introduced after the crash have made such products largely disappear from the mainstream market.
Today, mortgages exceeding 100% LTV are extremely rare. Where they do exist, they typically require family support or guarantor arrangements. Products like family springboard mortgages allow relatives to use their savings as security, enabling the buyer to borrow without a traditional deposit.
The appeal for borrowers is clear. These arrangements can help first time buyers cover stamp duty, solicitor fees, surveys, or essential repairs. For buyers who have enough income to afford repayments but lack savings, this type of borrowing may offer a route onto the property ladder.
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Not all mortgages above 100% LTV work the same way. The structure of the deal affects your repayments, your obligations, and your level of risk.
Some lenders offer a straightforward mortgage where the full amount is lent as a single product. The additional funds may be added to the mortgage balance, increasing the total debt secured against your home.
Other lenders split the borrowing into two parts. The main mortgage covers up to 100% of the property value, while the additional amount is provided as a separate loan. This second portion might be a secured loan using your property as collateral, or an unsecured personal loan carrying higher interest rates.
Each approach has different implications for interest rates, repayment terms, and what happens if you fall behind on payments. Make sure you understand exactly what you are signing up for before committing.
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The risks of starting in negative equity
When you borrow more than your home is worth, you begin your mortgage in negative equity. This means you owe more than you could get if you sold the property.
Being in negative equity presents significant risks. If property prices fall or stay flat, it may take years before your home is worth more than your outstanding debt. During that time, selling the property would leave you with a shortfall to pay off. Moving home becomes far more complicated.
Remortgaging to a better deal can also be difficult. Most competitive rates require decent equity in the property. If you are still in negative equity when your initial deal ends, your options may be limited and more expensive. Fluctuating interest rates or economic downturns can make this position even more precarious.
Borrowing more also means higher monthly payments and more interest paid over the life of the loan.
Is this type of mortgage right for you?
If you cannot save for a deposit, alternatives may be worth exploring first. Shared ownership schemes let you buy a percentage of a property while renting the rest. Lifetime ISAs offer a government bonus on savings put towards a first home.
For those still considering high LTV borrowing, speak to a mortgage broker with experience in these products. They can explain what family support options exist and whether the numbers make sense for your situation.
For current stamp duty thresholds and rates, check the GOV.UK website. Getting independent legal advice before signing any mortgage agreement is sensible, particularly with a less conventional product.
Choosing to borrow above 100% LTV involves understanding the specific trade offs and risks involved.
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