Loan To Value Mortgages (LTV)
Loan to value – LTV – how it works and what it means to you
A key factor when considering your mortgage or re-mortgage options is your loan to value or LTV.
Your LTV is a mathematical calculation outlining the size of your mortgage compared to the value of the property and is therefore of great importance to you as the borrower, and also to the lender.
How to calculate LTV
To calculate the LTV on your property, divide the mortgage size by the property value and multiply by 100.
Example – £200,000 mortgage with £400,000 value equals 200,000/400,000 X 100 LTV = 50%
If you are buying a property, the figure you would use in your loan to value calculation would either be assessed property value or the agreed purchase price, whichever is the lower.
LTV and it’s effect on your mortgage
The lower your loan to value, the more equity is in your property, and the less risk there is for the lender. For this reason, lower loan to value mortgages are both less expensive and easier to obtain.
Maximum loan to value
Many borrowers, particularly first-time buyers, are seeking the maximum possible loan to value. In the past, loan to value on a mortgage could have been 100% or even more, but in today’s market, the maximum loan to value available is 95%.
In other words, to purchase a property valued at £100,000 pounds, the borrower must put down a deposit of a minimum £5,000 or 5% of the value.
Since there is little equity in the property to safeguard the lender, credit scoring on 90% plus loan to value mortgages is tight.
Not all lenders offer high loan to value mortgages (85%+ mortgages). Those that do, will be limited by the regulator on the total lending they can have out at any one time with high LTV’s.
Minimum loan to value
As the LTV on a property decreases, more mortgage product becomes available, and pricing becomes keener.
Mortgage products are typically price banded in 5% bands where each drop or rise of 5% of LTV puts the borrower into a new product range.
Typical bandings are:
- Up to 95% LTV Mortgages
- up to 90% LTV Mortgages
- up to 85% LTV Mortgages
- up to 80% LTV Mortgages
- up to 75% LTV Mortgages
- up to 70% LTV Mortgages
- up to 65% LTV Mortgages
- up to 60% LTV Mortgages
Not all lenders will have a different product range for each of the above LTV bands. Some may have products for 60%, 75% and 85% banding. Others may band at 80% and 90%.
Mortgage products are very sensitive to LTV when it comes to pricing. For this reason, it is often worth putting down a little extra deposit to squeeze your lending into the next loan to value banding.
The minimum loan to value for product banding with mortgage lenders is 60%. This is where pricing hits its bottom rate.
LTV and re-mortgaging
Loan to value is a particularly tricky subject for re-mortgage clients. When a property is purchased, it is often a higher loan to value, as time progresses, property value increases and some of the mortgage is repaid, reducing the LTV. Borrowers can then find themselves in a lower loan to value range with access to more competitive products.
It is common however, for borrowers on a re-mortgage case to over estimate the value of their property. Valuers engaged by mortgage lenders can be very conservative with the price estimates on re-mortgages and this should be borne in mind when targeting your loan to value price band.
LTV and buy to let
Buy to let mortgages are priced banded in a similar way to residential mortgages, although the maximum lending for most buy to let lenders is 75% LTV, and the maximum for the market is 85% LTV.
If you are seeking a mortgage or re-mortgage call us now on 020 8979 9684