Understanding 85% LTV Remortgages
At 85% LTV, your mortgage represents 85% of your property's current market value, meaning you have 15% equity. For a property worth £250,000, this would mean a mortgage balance of £212,500 with £37,500 in equity.
This LTV band is significant because it marks the point where many lenders start to apply noticeably higher interest rates compared to lower LTV brackets. The reason is straightforward: from the lender's perspective, a higher LTV means a higher risk. If property values were to fall, there is less of an equity buffer before the loan amount exceeds the property's value.
That said, 85% LTV is far from unusual. Many homeowners find themselves in this position, particularly if they purchased their property relatively recently, if property values in their area have been static, or if they took out a high LTV mortgage initially and have not yet paid down a substantial portion of the capital.
The key factors that lenders consider when offering remortgage deals at 85% LTV include:
- Your credit history — A clean credit record is more important at higher LTVs. Lenders may be less flexible about past credit issues when there is less equity to cushion their risk.
- Your income and affordability — Lenders will scrutinise your income and outgoings carefully to ensure you can comfortably afford the repayments, particularly as rates at this LTV tend to be higher.
- The property type and condition — Standard residential properties in good condition are straightforward. Non-standard construction, flats above commercial premises, or properties in a poor state of repair may face additional scrutiny.
- Your employment status — While employed applicants typically have the most options, self-employed borrowers and contractors can also remortgage at 85% LTV with the right lender.
Despite the higher rates compared to lower LTV bands, remortgaging at 85% LTV is still likely to save you money compared to staying on your lender's standard variable rate. It is always worth exploring your options.
How 85% LTV Rates Compare to Other Bands
Interest rates at 85% LTV are higher than those available at 80% LTV or below, but the difference is not always as dramatic as you might expect. The mortgage market is competitive, and lenders regularly adjust their pricing to attract borrowers at all LTV levels.
To give you a sense of the rate landscape, here is a general comparison of how rates tend to differ across LTV bands:
| LTV Band | Rate Indication | Typical Equity Required |
|---|---|---|
| 60% or below | Lowest rates available | 40%+ |
| 60-75% | Very competitive | 25-40% |
| 75-80% | Competitive | 20-25% |
| 80-85% | Moderate increase | 15-20% |
| 85-90% | Noticeable increase | 10-15% |
| 90-95% | Highest standard rates | 5-10% |
The premium you pay at 85% LTV versus 75% LTV might be in the region of 0.3% to 0.7% depending on market conditions and the specific lender. On a £200,000 mortgage, even a 0.5% rate difference amounts to roughly £1,000 per year in additional interest, so it is worth considering whether you can reduce your LTV before switching.
It is also worth noting that some lenders price their products at specific LTV tiers rather than using broad bands. For example, one lender might offer the same rate at 80% and 85%, while another might have distinct pricing at every 5% increment. This is why a whole-of-market broker is so valuable — they can identify which lenders offer the most competitive rates at your exact LTV position.
When comparing deals, always look at the Annual Percentage Rate of Charge (APRC) and the total cost over the product term, including any fees. This gives you a fairer comparison than the headline rate alone.
Strategies to Reduce Your LTV Before Remortgaging
Even a small reduction in your LTV can make a significant difference to the deals available to you. If you are currently at 85% LTV, bringing it down to 80% could unlock noticeably better rates. Here are some practical strategies:
Make mortgage overpayments
Most mortgage lenders allow overpayments of up to 10% of the outstanding balance per year without penalty. If your current deal permits this, making regular or one-off overpayments in the months before you remortgage will reduce your loan balance and improve your LTV position.
Time your remortgage with property value growth
If house prices in your area have been rising, your property may be worth more than when you last had it valued. An increased property value means a lower LTV, even if your mortgage balance has stayed the same. Keep an eye on local sold prices and consider getting an up-to-date estate agent valuation before you apply.
Use savings to pay down the mortgage
If you have money sitting in a savings account earning modest interest, it could make more financial sense to use some of it to reduce your mortgage balance before remortgaging. The interest rate savings on your mortgage could far exceed the interest earned on your savings, particularly in the current market.
Consider home improvements that add value
Targeted improvements such as a new kitchen, bathroom renovation, or energy efficiency upgrades can increase your property's market value. However, be realistic about the return on investment — not every improvement adds value pound for pound, and the effect varies by location.
Wait a little longer
If you are close to the 80% threshold, it may be worth waiting a few months to allow regular mortgage repayments and potential property value increases to push you below 80%. However, weigh this against the cost of staying on your current rate — if you are on a high SVR, switching sooner at 85% LTV may still save you money overall.
Your mortgage broker can help you calculate whether reducing your LTV before remortgaging makes financial sense based on your individual circumstances.
