{"id":5054,"date":"2022-05-31T11:57:45","date_gmt":"2022-05-31T10:57:45","guid":{"rendered":"https:\/\/octagoncapital.co.uk\/?p=5054"},"modified":"2022-05-31T11:57:45","modified_gmt":"2022-05-31T10:57:45","slug":"how-does-ltv-work","status":"publish","type":"post","link":"https:\/\/octagoncapital.co.uk\/guides\/how-does-ltv-work\/","title":{"rendered":"How Does LTV Work?"},"content":{"rendered":"
LTV works as a percentage of a property\u2019s value that a lender is willing to lend you. For example, if you had 30% of the property\u2019s value to put down as a deposit, a lender could offer you the remaining money to buy the house through a 70% LTV mortgage.<\/p>\n
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\u2019re important, what\u2019s a good LTV to have and how to calculate the one you\u2019ll need.<\/p>\n
<\/p>\n
Your LTV (or Loan to Value), is a way of expressing the amount of money you\u2019re borrowing with a particular mortgage or loan compared to the property\u2019s\/asset’s total value.<\/p>\n
The LTV is expressed as a percentage \u2013 this being the percentage of the property\u2019s\/asset’s value you\u2019ve borrowed.<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
For example, if the property\u2019s total value is \u00a3300,000 and you borrow \u00a3210,000 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\u2019ll also have to provide the remaining 30% through a deposit. Using our example above, if your property\u2019s total value is \u00a3300,000 and you borrow \u00a3210,000 through a 70% LTV mortgage, you\u2019ll have to offer \u00a390,000 as a deposit.<\/p>\n
It’s worth noting that LTVs don\u2019t just apply to mortgages, but are relevant for any type of secured loan, including Bridging Loans.<\/p>\n
<\/p>\n
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\u2019re 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.<\/p>\n
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.<\/p>\n
The lower the LTV the less the risk is for the lender. Therefore, you\u2019ll 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.<\/p>\n
<\/p>\n
As lower LTVs typically come with better deals, generally, lower LTVs are viewed as a more ideal mortgage to get.<\/p>\n
High LTVs are considered anything that\u2019s 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.<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
However, while lowering your LTV can help you access better deals, for mortgages, your options will depend on your circumstances, including the property\u2019s value, how much deposit you can afford and other details surrounding your affordability.<\/p>\n
There are a range of different LTVs available for loans, including:<\/p>\n
There\u2019s no minimum LTV, however the amount available can depend on the lender, the loan type and the details of your application.<\/p>\n
<\/p>\n
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).<\/p>\n
For example, if you\u2019re looking to purchase a property worth \u00a3200,000 and have \u00a360,000 available for this, you could borrow a 70% LTV loan to make up the remaining \u00a3140,000 for this purchase, and use the \u00a360,000 as a 30% deposit.<\/p>\n
<\/p>\n
\u00a0<\/strong>A 75% LTV loan will help you borrow 75% of an asset\u2019s value, with borrowers having to make up the remaining 25% as a deposit.<\/p>\n For example, if you\u2019re looking to buy a \u00a3200,000 property and have \u00a350,000 available to put down on this, a 75% LTV loan would help you borrow the remaining \u00a3150,000 to complete the purchase on this property. In this circumstance, the \u00a350,000 would be used as a 25% deposit.<\/p>\n <\/p>\n 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.<\/p>\n For example, those wanting to buy a \u00a3200,000 property and have enough for a 20% deposit (\u00a340,000) can borrow the rest of the money for the purchase (\u00a3160,000) via an 80% LTV loan.<\/p>\n <\/p>\n Borrowers who are loaned an 85% of the asset\u2019s value will have to provide the remaining 15% for the purchase.<\/p>\n For example, borrowing an 85% LTV loan on a \u00a3200,000 property means the lender is loaning the borrower \u00a3170,000 \u2013 the lender having to make up the remaining 15% (\u00a330,000) as their deposit.<\/p>\n <\/p>\n A 90% LTV loan offers borrowers 90% of the asset\u2019s value \u2013 borrowers having to make up the remaining 10%.<\/p>\n For example, on a \u00a3200,000 property, a 90% LTV will provide \u00a3180,000. The remaining 10% (\u00a320,000) will have to be provided by the borrower.<\/p>\n <\/p>\n A 95% LTV loan allows you to borrow 95% of the asset, borrowers having to make up the remaining 5% in a deposit.<\/p>\n The government\u2019s guarantee scheme enables borrowers to apply for a 95% LTV mortgage, meaning you\u2019d only have to provide a 5% deposit to purchase the property.<\/p>\n <\/p>\n While uncommon, there are lenders out there who offer 100% LTV loans and mortgages. For this particular LTV loan, borrowers won\u2019t have to provide a deposit, the lender covering (as the name of the loan suggests) 100% of the asset\u2019s purchase.<\/p>\n <\/p>\n <\/p>\n <\/p>\n 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.<\/p>\n80% LTV <\/strong><\/h3>\n
85% LTV <\/strong><\/h3>\n
90% LTV <\/strong><\/h3>\n
95% LTV <\/strong><\/h3>\n
Can I Get a 100% LTV Loan\/Mortgage?<\/strong><\/h2>\n