LTV and lending criteria

MissBizzita

I've asked this question but fear it may get lost in my broker thread...

Does ltv impact on lending criteria? So, for example does a 60% ltv get underwritten in a different way to say a 90% given the lower risk?

Asking because I currently have an application going through with Leeds.

I've stupidly read lots of far from favourable reviews about them querying every single entry on bank statements, requesting proof of address from years and years ago etc etc. If this is standard, then that's fine.. I'm just wondering what to expect in terms of the information they'll need/ the amount of scrutiny they will apply!

Thanks in advance.

betmunch

A lower LTV could mean an easier underwriting process depending on the lenders criteria.

Couldnt comment on whether Leeds take this aproach though I'm afraid

Thrugelmir

MissBizzita wrote: »

So, for example does a 60% ltv get underwritten in a different way to say a 90% given the lower risk?

Depends on which perspective of risk you are looking at the situation from. Low LTV does indeed give better security. However mortgage lending is a volume low margin business. So lenders work on extremely low default rates when determining lending criteria. As repossession in total is an extremely expensive and time consuming business where the actual costs are not fully recovered. Hence all the other checks and balances. Affordability, credit rating etc etc. Which apply irrespective of the LTV being applied for.

MissBizzita

Thanks for the helpful replies.

Funnily enough, when I was a solicitor in the height of the boom and subsequent crash, I used to deal with a lot of mortgage repossessions, so that is one thing I do know a fair bit about.

The reason I ask is that I was reading another thread earlier where someone was wanting a 95% ltv and they were told that their finances would need to be squeaky clean to be accepted. So I was wondering if it followed that the criteria weren't as stringent for a far lower ltv.

cns06

I was told (no idea if its correct!) that <70% and there is less requirements for insurance within the system? >70% and there are more.

Thrugelmir

MissBizzita wrote: »

Thanks for the helpful replies.

Funnily enough, when I was a solicitor in the height of the boom and subsequent crash, I used to deal with a lot of mortgage repossessions, so that is one thing I do know a fair bit about.

The reason I ask is that I was reading another thread earlier where someone was wanting a 95% ltv and they were told that their finances would need to be squeaky clean to be accepted. So I was wondering if it followed that the criteria weren't as stringent for a far lower ltv.

Into the mix you have to perm borrowing multiples, nature of job, potential job security, indebtedness, age, number of dependents. With today's computer systems many factors can be evaluated. It's as much about the borrowers profile matching the lenders target market. Mortgage funds aren't infinite. Every new product released will have a set tranche of funds. Hence why lenders come and go off best buy tables. Lenders run mortgage books top down, not bottom up. So will set rates to attract the type of business they want too at any given time.

With regards to cost of mortgages. Lenders are required to hold more capital for higher LTV mortgages than lower LTV. As a result they lend less money out. Which contributes to the higher interest rate charged.

andyfromotley

I suspect the processes will be the same.

The main difference you low LTV will make id to the rate you pay. I'm guessing that other than that it will be subject to the same processes as a 90% one.

Building a flexible process is more expensive and unwieldy. Plus if you (because of your processes) need proof of addresses for last 5 years (lets say for argument) it doesn't really make any sense to say, 'agh yeah but not for this one its a low LTV'

I don't know any of this its just speculation from me.

MissBizzita

Thanks for the replies, interesting.