Lower LTV % or keep some money for home improvements

[Tomatoandbasil]

We were planning on a 85% LTV mortgage which would leave us enough money to improve the new house a bit (new kitchen etc). But the rates are really terrible just now so we are looking at pushing to 80% LTV. It will leave us no money for big improvements beyond a few carpets and some paint. I’m pregnant so there’s a maternity leave and then nursery fees for around 2 years coming up so little chance of saving.

What would you do? Sink all the money into the mortgage for a lower rate and lower repayments or keep the cash and take a higher LTV?

If you go for the higher LTV, then you will be paying a higher monthly payment and a lot more over the term of the mortgage.

I would go for the lower rate and do the jobs as you can afford it.

You could always get a 0% credit card and put some of the cost on that...

How bad is the kitchen? Can you live with it? Or it is falling apart?

Can you actually get an 85% mortgage? From the threads on here it seems that 20% deposits tend to be required these days.

And how bad is the kitchen and what would be the difference in monthly repayments with the 80% vs 85% LTV? If it’s considerable, eg £150 per month, the you might find that saving the difference for 2 yrs, you’ll have enough for kitchen cabinets.

We had this same dilemma and decided on going for the higher deposit as we could save some money each month to be able to do some of the work we need to do. It depends on the house, but now we are in, the work we thought we would need to do urgently we have now decided can actually wait.

It’s over £100 a month difference. The advisor says we can get a 15% one. But it sounds like we would be better pushing to 20%. The kitchen is dated but not falling apart.

I'd push for better LTV - it's cheaper in the long run, and I found changes I made as soon as I moved in wouldn't be the same as I made after being in for a few months. Having to save up will give you time to think about changes a bit more, especially if it's cosmetic/wants rather than needs!

I would go for a better LTV.

Also to be fair if you having kids as long as the kitchen isn't dangerous, you are better off waiting until they are slightly older before doing any major improvements.

We did the opposite of most of the recommendations on here. Basically we did it want the stress of worrying we couldn’t fix any major problems that cropped up in the next 2 years or so. We kept £12k back which meant we have an 85% mortgage the mortgage is for 3 years and we can then adjust the LTV at that point and remortgage at 80% if needs be. We can save about £250 per month so after 3 years that’s about £9k which we can put up with the repayments made and gain 5% of the LTV.

We are wrapping a loan into the mortgage. We will remortgage in 2 years and look for a better rate as we will have spare cash in 2 years but we want to do the work now. It works out cheaper than taking a renovation loan.

We have gone for the lower LTV. Hoping it all works out and it’ll be okay living without the improvements for a while!

Good decision I think - even if you save the £100 a month extra the bigger mortgage would have cost you'll have enough to make some improvements - e.g. if the kitchen is functional but dated £500 worth of new doors, handles and lick of paint can really spruce it up. A fresh coat of paint or new paper on the walls, some nice rugs to cover tired/worn carpets and good quality soft furnishings and lighting will make a comfortable space out of even a quite tired/ugly living room. And even if the bathroom is hideous/avocado suite level, keep it really clean and have nice toiletries and fixings and it will be fine...

I've always had fixer-uppers (and rarely the budget to immediately do the fixing up) and it's surprising what you can quite happily live with once you get used to it - even absolute design no-no's like artex ceilings or hideous cheap lino flooring are things you stop noticing once it's been your home for a while (and it can be better to do work once you've lived there a while and really know how you use the space etc)...

Thanks @maxelly you’ve made it sound lovely anyway!

I agree I would definitely go for higher LTV as you will get a better interest rate. If you would be saving over £100 month you.could probably.buy new door fronts and handles in a few months. Then you have over £100 more each.month to help cover maternity leave shortfall or to buy baby things. As long as it is safe and clean you can manage. Over lifetime of mortgage it will save you thousands of pounds. Just do up rooms one at a time when you can afford it.

Put as much deposit as physically possible!!

Surely it depends on whether you plan to take a home improvement loan in the future? If you think in net present value terms, the £100 you save now will be worth less in the future. It will be worse if savings rate fall as is expected. The Bank of England is talking about negative interest rates.

It would not be worth a lower LTV if it extends for the lifetime of the mortgage but if you speak to your financial advisor they may be able to help you take advantage of the low interest rates to borrow as part of your mortgage and pay back the home improvement amount in the next handful of years. It will work out much cheaper than savings. It is a bit complicated but speak to your financial advisor.

@Lifeandjoy we won’t take out any loans. We will just have to wait and save for the improvements. They are mainly cosmetic.