De La Soul may have thought that 3 is the magic number…
…but 60 is the magic number for those of us who own a home!
This is because the credit crunch is far worse if you are a homeowner with less than 40% equity in your home.
A new study by those wise money folks at Fool.co.uk shows that a loan-to-value (LTV) of 60% is the magic number if you want to access most of the mortgage products currently on the market.
If you only need to borrow less than 60% of the value of a property, you can choose from as many as 4,588 different mortgages. (see diagram below).
The findings also show that there are only 74 mortgages available if you need to borrow more than 95% of the value of your home. But the number of products increases to 466 if you have more than 10% equity in your property. The range of mortgages jumps seven-fold to 3,360 for those of you owning 25% of your home.
(Chart shows the number of mortgage products at different loan-to-values on 5 September 2008)
Over the last ten years those of you with interest only mortgages have seen the size of your loans compared to the value of your properties shrink as house prices climbed. Those of you who bought their homes early on will have benefitted substantially, but those who bought your properties later have been less fortunate.
Your home was best before April 2004
Homeowners in Northern Ireland who bought their properties with 100% interest only mortgages before July 2004 should still have 40% equity in their homes. Meanwhile, people in Scotland who bought before July 2003 should be able to access a raft of favourable mortgages at 60% LTV.
In the main, as a UK homeowner who bought your home before July 2002, you will be able to take your pick from over 4,000 mortgages that are limited to people with 60% LTV. However, Greater London and homeowners in the South East should have bought before year 2001.
David Kuo, Head of Personal Finance at Fool.co.uk, says:
“If proof was ever needed that banks like to lend money to people who need it least, then this is it.
“But you don’t have to rely on rising property prices to shrink the loan-to-value. There are other ways, such as increasing your monthly mortgage repayments, which will also reduce the size of your loan compared to the value of the property.
“Alternatively, homeowners may want consider exploiting weakness in the property market to upsize, especially if the amount of equity in their homes will allow them to access mortgage products that others can’t.
“Rising property values has made it easy for many homeowners to seemingly make money out of thin air. Some may argue that those who bought their homes early were just lucky. But when it comes to mortgages, the harder you work at paying off the loan, the luckier you will get.”
© Fool.co.uk 2008
(Please note that articles on Money Hospital do not constitute regulated financial advice. The articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. All rates are correct at time of printing but are subject to change without notice.)