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
