125% mortgages and remortgages

It is now possible for you to borrow up to 125% of the value of the property with three UK mortgage lenders.

Northern Rock, The Coventry and most recently BM Solutions all offer mortgage facilities to first time buyers and home movers, which could enable you to borrow 125% of the property value.

Traditionally mortgage lenders would consider lending a maximum of 100% of the property value, possibly allowing some of the fees associated with a purchase to be added to the mortgage. The introduction of mortgages combined with an unsecured loan now means that you could borrow 125% of the property value.

Speak to an Advisor		Compare Mortgages		Learning Zone
Buy to Let Centre		Insurance Centre		Legal Service / HIPS

How does it work?

The lender actually offers two credit facilities, firstly a mortgage for 95% of the property value and an unsecured loan for an additional 30% up to a monetary limit which is often £30,000. The interest rate on the secured loan is usually the same as the mortgage account and can be repaid over the same term as the mortgage.

Lenders will permit the mortgage to be set up on an interest only basis but the unsecured loan element is always set up on a repayment (capital and interest) basis.

Why?

With property prices being so high, many first time buyers find it difficult to save a deposit toward their first purchase. This combined with debt from studying and other personal debt means that obtaining a mortgage can be very difficult. The unsecured loan facility will provide the 5% deposit and can also be used to pay for the associated costs in buying the property.

Lenders offering 125% mortgages will allow you to consolidate existing debt into the mortgage. This usually means that more disposable income is available each month to pay the mortgage. With lenders often basing their lending decisions on affordability for a mortgage instead of traditional income multiples; the result of consolidating debt is that you may be able to borrow more.

Although the unsecured loan can be used to assist with a 5% deposit or to consolidate debt, some people use the facility for the purchase of expensive items such as Cars, Holiday Homes or even home improvements. The lenders are generally happy for the loan to be used for any legal purpose.

The down side:

125% style mortgages can be used very effectively but the interest rates charged do tend to reflect the flexibility being offered by the lender. The main drawback is where the unsecured loan is being used to consolidate debt or to pay for items over a long period. Traditionally most unsecured debt is taken over a short period of time and this limits the interest charged during the credit agreement. By consolidating unsecured debt into the mortgage package you may extend the repayment period significantly, possibly to 25-years or longer. Interest is charged until the debt is repaid so you may find the total cost of the borrowing is much higher.

How to apply:

If you are interested in a mortgage package which would allow you borrow more than the value of your home or the property you wish to buy. Please contact us directly on 0800 756 9556. An experienced Smaart Associates mortgage advisor will discuss your requirements and research the market to find you the best terms available.

To Speak with an Adviser phone us on 0800 756 9556

Before applying for a mortgage or remortgage it's important that you understand what your existing commitments are and how much you can afford in repayments for your mortgage.

Your Smaart Associates Adviser will help you establish a budget for your new mortgage but to get started please try using our online budget planner.