Right now, a mere 10% difference in a loan to value can be the difference between an affordable mortgage and one that is simply unworkable.

Moneynet.co.uk has been assessing at the financial impact facing homeowners who may suddenly be looking to lock into a fixed rate mortgage. It found that several fixed rate mortgage deals are being priced higher in the last couple of weeks, with those on a higher LTV having to shell out hundreds of pounds a month more than those with a little more equity.

Some 18 months ago it didn’t matter if you had 40% or 10% equity in your property as you’d get the same rate, but it’s a totally different landscape now. Lenders are demanding security and that means more equity. Whilst the customer with an 85% mortgage will pay extra as they are borrowing more money than a 75% LTV customer, they now also now face having to pay an additional hefty premium for the higher borrowing ratio.

Moneynet.co.uk says the extra you need to pay for needing to borrow an extra £20,000 or 10% LTV is quite staggering – more than £14,000 over five years or £236 per month extra in some examples – it found that some lenders are charging a whole 1% for 10% less equity.

This is proof that equity is crucial for those looking to remortgage or to find a new mortgage. Simply, the more that you have, the less you will have to pay for the next few years.

But what if you are equity poor? Many homeowners used their equity when times were good in the form of secured loans or remortgages. Others have had to see their homes lose thousands in value over the last year. The only way to get round this clever financial planning and good financial advice.

Talk to a financial adviser about how you can increase your equity. It may mean saving, it may mean investing – whatever it takes, get the advice before looking to plan your long-term financial future.

SOURCE: Moneynet, 19/06/09

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