Martin Lewis shares 'most important factor' first-time homebuyers should think about

Carrington Walker
·3-min read
Martin Lewis
-Credit:ITV


Martin Lewis has warned first-time homebuyers to consider the single 'most important factor' before stepping onto the property ladder.

The Good Morning Britain financial guru shared the tip on mortgage rates with his near-million-strong TikTok audience. Martin's money-saving titbits have racked up more than four million likes on the social media platform, helping his followers save in all manner of ways.

"If you're a first-time buyer, or want to be, I want to talk to you about the single most important factor which will affect what rate of mortgage you can get," Martin began in his latest post. "This is my quick briefing on LTVs - which stands for 'loan-to-value' and that is crucial.

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"Yes, your credit worthiness affects what mortgage you can get and, yes, your affordability score affects it. But, for the actual mortgage rate, it's all about LTV.

"What is loan-to-value? Well, it's what portion of your home's current value, and house prices can change, are you currently borrowing." The money-saving expert breaks down a 'simple' example: "You've got a £10,000 deposit, you're buying a £100,000 house.

"You're borrowing £90,000 on £100,000 - you have a 90% LTV. You can talk about it in deposit terms, but that's not how the mortgage industry does it. It [the industry] talks about it in LTV terms.

"Clearly, the lower your LTV, the smaller the loan compared to your house price, the better the mortgage rate - down to about 60% LTV. Below that, it doesn't tend to get much cheaper.

"What happens in the market, and this varies all the time, so you need to go and play on a mortgage best buy comparison tool, is that the mortgage rates can drop roughly every 5% of LTV, but there are crucial thresholds where they may drop more - it varies with time.

"So, 95% down to 90%, 90% down to 80%, 80% down to 75% and 75% down to 60% may well have even bigger gaps than the others. But what does this mean for you in practice?" Martin breaks down the thresholds in another manageable example.

little house next to house keys and a calculator
Loan-to-value is the portions of your home's current value, and house prices that can change the money-saving expert explains -Credit:Getty Images

"You are buying a house for £150,000, and you've saved up a £14,000 deposit - that sounds pretty good. This deposit is just over 9% [of the home's value], because it isn't 10%, that means you don't have a 90% LTV. You have a 95% LTV - despite being well past the 95% LTV value.

"This means you'll be getting a mortgage rate for people in this LTV category - if you could push and find another £1,000 to make it a £15,000 deposit, you'll make the 90% category. These [examples] are made up, and it will change over time, but, for example, at a 95% LTV, let's say the mortgage rate is 5%.

"But, at a 90% LTV, the mortgage is 4.5% - which on a £150,000 home would be a £40 - £50 a month difference, £500 - £600 a year. Just pushing a little bit more to the next threshold can save you a lot of money on your mortgage repayments."

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