LTV explained

Your home may be repossessed if you do not keep up repayments on your mortgage

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Loan to Value (LTV): the basics

Shopping for a mortgage can be a nightmare. Even for those who passed maths at school! You’ll see so many different figures, rates, and percentages. What do they all mean? How do you use them to work out repayments?

You will have lots of questions you need answering. This blog covers your LTV rate: what it is, how to calculate it and why it’s important.

What is the LTV rate?

The LTV rate is the “loan to value” rate of your mortgage.  It is the ratio between your property value and the mortgage or loan you require to afford it.  Here’s a brief diagram to explain:

How to calculate your LTV

As a first-time buyer, unless you’re very lucky, you won’t be able to buy a property outright; you’ll need a mortgage which is a loan secured against the property itself.

How much you need to borrow will depend on what savings you have and the value of the property you want to purchase.

Let’s look at an example of a property that is on the market for £250,000.  You have saved £50,000 for the deposit so you need to borrow £200,000.  The £50,000 of your money is equivalent to 20% of the property value.  This means that you need an 80% LTV mortgage to cover the remainder of the property purchase price:

  • Property value = £250,000
  • Deposit amount = £50,000
  • Mortgage required = £200,000
  • Percentage of home owned by buyer = 20% (£50,000 as a percentage of £250,000)
  • Remaining value of home to be mortgaged = 80% (100% of the value of the property minus the amount owned by buyer)

To calculate your LTV, divide the amount you want to borrow by the total value of the property and multiply by 100:

(Mortgage amount / property value) x 100 = LTV rate

Why is LTV important?

Put simply, LTV directly impacts the price of your borrowing.  LTV rates are set between 60% and 100%:

  • Anything under 80% is considered a low LTV
  • 90% or more is a high LTV

The higher the LTV rate of your mortgage, the higher the risk.  When applying for a high rate LTV mortgage, other factors will be taken into consideration for risk, including your credit score.  Those with a bad credit history may only be able to obtain the lowest normal LTV rate of 60.

Once you can afford to put down more than 60% of the value of the property you will purchase as a deposit, you will be able to enjoy cheaper mortgage rates.

Professional advice from experienced advisors

It’s not easy to understand the numbers behind mortgages and their rates but we’re here to help.

Get in touch today

If you’re moving home, need to remortgage, buying an investment property or thinking about a property development project, get in touch.  We’ll talk through your circumstances and what you’re hoping to achieve giving you a breakdown of the numbers.  We’ll outline any fees but don’t worry, you’ll only pay if you choose to go ahead.

Call 0117 907 0818, email contact@mortgage-style.co.uk or use our online web chat.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

There may be a fee for mortgage advice