LTV works as a percentage of a property’s value that a lender is willing to lend you. For example, if you had 30% of the property’s value to put down as a deposit, a lender could offer you the remaining money to buy the house through a 70% LTV mortgage.
There are a range of different LTVs available to borrowers, and a variety of eligibility criteria to meet for them. Here, Octagon Capital takes you through the essentials on LTVs, including why they’re important, what’s a good LTV to have and how to calculate the one you’ll need.
What Is an LTV Ratio?
Your LTV (or Loan to Value), is a way of expressing the amount of money you’re borrowing with a particular mortgage or loan compared to the property’s/asset’s total value.
The LTV is expressed as a percentage – this being the percentage of the property’s/asset’s value you’ve borrowed.
For example, if the property’s total value is £300,000 and you borrow £210,000 in the mortgage, the LTV on this will be 70%. While a 70% LTV mortgage will pay for a substantial chunk of the property, you’ll also have to provide the remaining 30% through a deposit. Using our example above, if your property’s total value is £300,000 and you borrow £210,000 through a 70% LTV mortgage, you’ll have to offer £90,000 as a deposit.
It’s worth noting that LTVs don’t just apply to mortgages, but are relevant for any type of secured loan, including Bridging Loans.
Why Is LTV Important?
LTV is important as it represents the percentage of a property or asset’s total value the lender is willing to loan you. Deciding the LTV you’re wanting to borrow is an important decision, that takes many factors into consideration, including your affordability, the amount you can provide in a deposit, and how much of a risk your ideal LTV is for a lender to loan you.
The higher the LTV on a loan, the greater the risk the lender is taking on. If a lender has provided a high LTV mortgage to a borrower, and that borrower is unable to make repayments, the lender will make back less money if they have to repossess and sell the house the loan is secured on to.
The lower the LTV the less the risk is for the lender. Therefore, you’ll typically find lenders save their top deals for those wanting low LTVs, meaning if you can afford a higher deposit and a lower mortgage, you may get access to better deals.
What’s a Good LTV To Have?
As lower LTVs typically come with better deals, generally, lower LTVs are viewed as a more ideal mortgage to get.
High LTVs are considered anything that’s above 80%, and can come with higher interest rates than lower LTVs. For example, a 60% LTV mortgage may offer better deals than a 70% LTV.
However, while lowering your LTV can help you access better deals, for mortgages, your options will depend on your circumstances, including the property’s value, how much deposit you can afford and other details surrounding your affordability.
There are a range of different LTVs available for loans, including:
There’s no minimum LTV, however the amount available can depend on the lender, the loan type and the details of your application.
70% LTV
A 70% LTV loan will allow you to borrow 70% the value of the asset the loan is being secured against (e.g., a property).
For example, if you’re looking to purchase a property worth £200,000 and have £60,000 available for this, you could borrow a 70% LTV loan to make up the remaining £140,000 for this purchase, and use the £60,000 as a 30% deposit.
75% LTV
A 75% LTV loan will help you borrow 75% of an asset’s value, with borrowers having to make up the remaining 25% as a deposit.
For example, if you’re looking to buy a £200,000 property and have £50,000 available to put down on this, a 75% LTV loan would help you borrow the remaining £150,000 to complete the purchase on this property. In this circumstance, the £50,000 would be used as a 25% deposit.
80% LTV
With an 80% LTV, borrowers are loaned 80% the value of the asset the loan is being secured against, and will have to make up the remaining amount in a 20% deposit.
For example, those wanting to buy a £200,000 property and have enough for a 20% deposit (£40,000) can borrow the rest of the money for the purchase (£160,000) via an 80% LTV loan.
85% LTV
Borrowers who are loaned an 85% of the asset’s value will have to provide the remaining 15% for the purchase.
For example, borrowing an 85% LTV loan on a £200,000 property means the lender is loaning the borrower £170,000 – the lender having to make up the remaining 15% (£30,000) as their deposit.
90% LTV
A 90% LTV loan offers borrowers 90% of the asset’s value – borrowers having to make up the remaining 10%.
For example, on a £200,000 property, a 90% LTV will provide £180,000. The remaining 10% (£20,000) will have to be provided by the borrower.
95% LTV
A 95% LTV loan allows you to borrow 95% of the asset, borrowers having to make up the remaining 5% in a deposit.
The government’s guarantee scheme enables borrowers to apply for a 95% LTV mortgage, meaning you’d only have to provide a 5% deposit to purchase the property.
Can I Get a 100% LTV Loan/Mortgage?
While uncommon, there are lenders out there who offer 100% LTV loans and mortgages. For this particular LTV loan, borrowers won’t have to provide a deposit, the lender covering (as the name of the loan suggests) 100% of the asset’s purchase.
The majority of 100% LTV mortgages require a guarantor. In these circumstances, a borrower will have to get a guarantor for the loan (typically a family member or a close friend) to add extra security for the lender, and reassure them that the loan will be paid back.
You can also find 100% LTVs available for certain bridging loans. While the majority of bridging loan providers have strict caps on their available LTVs, sometimes, in certain circumstances, lenders might be willing to offer 100% of the asset’s value to the borrower. Find out more about 100% LTV bridging loans by following the link.
How To Calculate My LTV
To calculate your LTV you’ll firstly need to subtract your available deposit from the asset’s/property’s value – this will give you the amount you need to borrow. Once you have this figure, divide it by the asset’s/property’s total value, and multiply the result you get by 100. This will give you the percentage you need your LTV loan to be.
For example, say you want to buy a house that’s worth £300,000, and have £51,000 available as a deposit. Minus the £51,000 from the original £300,000 to get £249,000 – the total amount you’ll need to borrow. Then, divide 249,000 by 300,000, and times the result by 100 to get the LTV you need – the LTV in this example being 83%.
Here’s the calculation in 3 simple steps:
- Step 1: The asset’s/property’s total value – your deposit = the amount you need to borrow
- Step 2: The amount you need to borrow / the asset’s/property’s total value = ?
- Step 3: ? x 100 = the LTV you’ll need
How Can I Get a Lower LTV?
There are a number of different ways you can lower your LTV. Lowering your LTV can help you access better rates on your borrowing options.
Below, we’ve listed ways your LTV can be lowered:
Save up for a larger deposit: The bigger the deposit you can offer, the lower the LTV loan you can get. Therefore, if you keep building up your savings and use these to offer up a larger deposit, you could find yourself accessing lower LTV loan deals.
House prices rise: If the value of your house/property rises, the amount that’s covered by the mortgage declines, thereby lowering your LTV. You can potentially help further add to the value of your property by making any repairs or investing in renovations.
House prices also typically increase over time anyway, which can help to further lower your LTV.
Are LTVs Different on a Buy-To-Let Mortgage?
You may find the LTVs available on a Buy-To-Let Mortgage are lower than those available with residential mortgages. The most you’ll typically find you can borrow with a Buy-To-Let Mortgage is 80% LTV, as they are considered a greater risk for lenders than standard residential mortgages.
Are LTVs Different on a Bridging Loan?
As bridging loans serve a different purpose than standard residential mortgages, it’s no surprise that the way LTVs are operated also differs between these two lending options.
Bridging loans, as their name suggests, can help ‘bridge the gap’ between a purchase and a sale. They can help borrowers to complete on a property within a tight timeframe, and are commonly used by landlords, investors, property developers and homeowners.
The LTV offered on a bridging loan is the amount of money the lender is offering the borrower as a percentage of the asset’s total value. For example, if someone is offered a 70% LTV bridging loan, they’re essentially being offered 70% of the property’s value as the loan.
75% LTV is the maximum amount a regulated bridging loan provider will go to. This LTV can however increase when opting for unregulated providers, who can go up to 80%, 90% and sometimes even up to 100%.
Unregulated bridging loans can only be secured by properties used solely for business or investment purposes. This means that you can’t secure an unregulated bridging loan on a borrower’s residential home.
You can find out more about bridging loans and the different LTVs available by following the link.
