Find the best mortgage deal for you
Q: I am looking to buy my council flat, which I currently rent, but am unsure which mortgage would be best. As I don't have a very big deposit, what are the best mortgages around?
Is it worth waiting and saving up to build a larger deposit, or should I go for a 90% or 95% mortgage if I can find one?
A: David Hollingworth is a mortgages expert at London & Country Mortgages in Bath.
When considering so-called 'right to buy' mortgages, some lenders are prepared to offer 100% of the discounted purchase price of the property.
The mortgage schemes available will depend on the discounted price of the property, relative to its open market value.
For example, if the open market value is £120,000 and the discounted purchase price is £60,000, then the loan to value (LTV) would be 50%, enabling you to access very competitive rates. If you are able to buy the property at a discounted rate, you should find out straight away whether you can secure a mortgage and what the monthly payment would be.
If you can't buy at a discount and need a 90-95% deal, schemes are far more limited and the cost will be higher.
It's still worth looking to see what you could secure and what the monthly cost would be - buying may still be cheaper than renting, with the added advantage of gaining an asset over time. If you decide it costs too much then you could save a larger deposit, which would enable you to access more competitive rates in due course.
As not all lenders will lend on right to buy properties, it would be worth speaking to a whole of market mortgage broker who will do the legwork for you. Make sure, though, that you choose a broker who doesn't charge a fee for advice, to keep costs under control.
What are right to buy mortgages?
These are available to council tenants who wish to buy their rented council home. To qualify you will need to have been a council or public sector tenant (living in armed forces or NHS trust housing) for at least five years - though these don't have to be consecutive.
You won't be eligible to apply if you are in financial trouble - if, for example, you owe money to creditors, have been declared bankrupt, or are unable to borrow money - or if the property isn't your main residence.
How big a discount you get depends on where you live, whether you're trying to buy a flat or a house, and how long you've been a tenant for.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.