LTV confusion

grade15

I understand what LTV means and what it represents. but I have an example of my problem.
This is hypothetical


I have a mortgage of 100K with rate of 1% and is portable.
my house is valued 200K. so my LTV is 50%.


I want to move house worth 300K.
so I borrow 100K more.


overall, I borrow 200K for this 300K house.
so the LTV is 66.66%. therefore my mortgage rates are based on 70%LTV.


BUT my original 100K is 1%, so why is my other 100K LTV rate based on the 200K LTV?
shouldn't the other 100K LTV be 100/300 = 0.333% because my original 100K already has a rate.

MortgageMamma

You can only port the original proportion of the mortgage at the original rate. Any additional borrowing is then done on current rates. This isn't always a good solution as it can leave you effectively with 2 mortgage accounts on different rates with different end dates. Therefore your early repayment charges are not in line with each other which can cause issues further down the line.

grade15

thanks, but I am not worried about the original rate because its a tracker with no ERC and has unlimited overpayments but I just wanted to know why the second current rate is based on the total borrow amount and not only a portion of new borrowing amount?.

MortgageMamma

that doesn't sound right to me either, who are you getting your mortgage with? you should phone and query it, they are better placed to explain it

grade15

phew, I thought I was the crazy..
HSBC, I phoned them and went into a branch to see a mortgage adviser. Both times said the same thing of 66.66%

kingstreet

If you want to borrow £200k on a £300k PP that's a 67% LTV.

You are benefiting from the original product which was available on lower LTVs and you are getting the increased borrowing on a product for upto 70% LTVs.

That's the way it's always been done. If you weren't porting, the whole lot would be on an upto 70% product as you would expect.

It's overall risk for the total mortgage, not the risk of each separate tranche of borrowing.

grade15

thanks kingstreet.
As its always been done that way..I best NOT challenge it!


but the overall risk for the total mortgage would be 70% rate and also (the 33% original rate = 1%) which sounds a bit unfair. I will be having two interest rates anyway, so why isn't the risk not separate.


hypothetical - if I ported the original mortgage with HSBC and I went to another financial institute for another mortgage for the other 100K..wouldn't it be 33.33% with them?

AnotherJoe

grade15 wrote: »

thanks kingstreet.
As its always been done that way..I best NOT challenge it!


but the overall risk for the total mortgage would be 70% rate and also (the 33% original rate = 1%) which sounds a bit unfair. I will be having two interest rates anyway, so why isn't the risk not separate. Because there's only one house so there's only one risk ?


hypothetical - if I ported the original mortgage with HSBC and I went to another financial institute for another mortgage for the other 100K..wouldn't it be 33.33% with them?

its very hypothetical since you cant do that.

kingstreet

grade15 wrote: »

hypothetical - if I ported the original mortgage with HSBC and I went to another financial institute for another mortgage for the other 100K..wouldn't it be 33.33% with them?

No. The new lender would take the overall secured lending LTV, not just their tranche.

At the end of the day, it's your stake in the property, your equity which determines the risk to the lender(s). That's why it's ALWAYS been done like that.

If you have 50% equity, you are a better risk than if you only have 30%.