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Nationwide changes LTV for Self-Employed to 85%

One of the UK’s major mortgage lenders has made a change to the loan-to-value (LTV) amounts it will be offering self-employed workers moving forwards, including contractors and freelancers.

Nationwide Building Society will now only be offering 85% LTV for self-employed mortgage applicants, having previously offered 90% LTV.

Nationwide will continue to offer 90% LTV for first time buyers to help encourage more people to get on the property ladder.  

Nationwide is the one of the largest mortgage lenders in UK, forming part of the traditional ‘big six’ lenders in the market.

What is LTV?

Loan to value is essentially a ratio regarding how much deposit you need to put down on a property, and how much your mortgage will cover the cost of the property overall. 

So if a house is valued at £100,000, and a 90% LTV mortgage is available, then the buyer would need to pay a £10,000 deposit – 10% of the overall cost of the property. The other 90% of the overall total is covered by the mortgage loan, making for 90% LTV value.

If an 85% LTV is in place however, then the mortgage only covers 85% of the overall property cost. For this same hypothetical £100k property, that equates to £85,000. This means that a deposit of £15,000 would need to be put down by any home mover to secure the property.

In this case, £5,000 is the difference between securing this hypothetical property with the two respective LTV values. With most properties today well over the £100,000 mark, this could be the difference for some buyers being able to secure a mortgage and missing out. 15% of a £300,000 house means a deposit of £45,000, whereas 10% is only £30,000. 

Why the limit?

Nationwide is justifying the change by saying it is facing strong demand for mortgages at present due to factors such as the stamp duty holiday.

A reason it is changing the LTV for self-employed workers specifically is because of a reported increased complexity in the underwriting process. This is due to challenges around assessing long-term affordability criteria for self-employed workers given the current pandemic situation. 

In fairness to Nationwide, they have offered one of the best LTV’s for self-employed workers for a fair while. The 85% amount they are changing to is now in keeping with many of the other major lenders, meaning Nationwide now forms part of the status quo rather than jumping out as a good option for self-employed workers looking to secure a new mortgage.

As mentioned, the 90% LTV still stands for first time buyers. So if you are a freelancer or contractor looking to get your first property secured, then Nationwide’s LTV rate remains a good one.

Nationwide has said that the change is temporary, so there is a chance they could at some stage revert back to 90% LTV for self-employed workers. 

What does this mean for contractor and freelancer mortgages right now?

The new limit will apply to any contractor or freelancer seeking a mortgage on a property. As mentioned, the move doesn’t mean that Nationwide isn’t worth looking at when seeking a mortgage, but the 90% LTV selling point is no longer available.

The change is also an example of a major lender reacting to some of the market changes that have been caused by the frankly crazy year we have enjoyed thus far. Whether similar such changes from other lenders come remains to be seen.

But in light of such a market situation and lenders having to potentially adapt to various market factors, getting expert advice on contractor mortgages, freelancer mortgages and residential mortgages certainly becomes all the more important. 

By understanding the various vagaries and vicissitudes of the market at present, it becomes easier to secure the perfect mortgage you are seeking as a self-employed worker

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Many brokers not discussing second charge mortgages

Large numbers of mortgage brokers are keeping the fact they offer second charge mortgages under their proverbial hats.

This is according to new findings from Brightstar Financial.

This may not be a term you are familiar with. But as a contractor or freelancer, second charge mortgages should be something you are aware of.

What are second charge mortgages?

Second charge mortgages are a type of secured loan which sees an applicant use their current home as security. So if you have already paid off £100,000 on your first mortgage, this can be used as security for your second mortgage. When looking to move to a new home for example, the equity of the home you are moving from can help you to secure the kind of second mortgage you want. If successful, you then have two mortgages to pay off.

This can often be cheaper than remortgaging. This is because remortgaging typically comes with a substantial early repayment charge that many applicants will want to avoid.

This model is advantageous for contractors or freelancers who may be struggling to get unsecured borrowing due to the nature of their work. This kind of borrowing might include a personal loan for example.

Why haven’t I heard of second charge mortgages?

Recent research from Brightstar Financial indicates that only a relatively small number of mortgage applicants are being presented with the option of second charge mortgages.

Brightstar Financial spoke with more than 1,000 intermediaries as part of their research. This included broker firms, directly authorised brokers, independent financial advisors and appointed representatives.

Their research found that just 26% of brokers even mentioned second charge mortgages to mortgage applicants. This is despite brokers being obliged by law to consider various forms of capital raising. This would include a discussion around second charge mortgages when consulting with an applicant.

From any applicant’s perspective, second charge mortgages are another card to consider playing when it comes to looking to secure a new mortgage. But these are seemingly an underused weapon.

What can I do to find out if a second charge mortgage is for me?

Roots Mortgages has experienced advisors who can explain the benefits of second charge mortgages further and how they work in practice. We can help identify whether this is a good option for you and your current situation.

To start a conversation with our team, simply get in touch. You can also get an estimate on how much you can borrow using our mortgage calculator.

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