LTV mortgages. What does ‘LTV’ mean and once you’ve got your head around your property’s LTV, what can you do to optimise your position? Read our LTV mortgage definition and guide to find out.
‘LTV’ (or loan-to-value) might sound a bit jargonny. But it’s a pretty important consideration for landlords, especially in 2017, with the headlines awash with lender price wars. Understanding LTV is an essential part of property life, so here’s a concise LTV (mortgage) definition, and how it all works.
Your loan-to-value (LTV) is the amount of mortgage you have (or will be given) in relation to how much the property is worth. The LTV is usually shown as a percentage, and shows you how much of the property is still mortgaged and how much you own (usually as equity).
LTV is essentially a jargon term. But if you’re in property professionally, it pays to understand what your lenders are talking about, and a quick example can help:
You have a mortgage of £300,000 and your property is worth £450,000
This means that 67 per cent of the property is mortgaged (this is your LTV), and the remaining 33% is yours (as £150,00 equity).
The LTV is important in banking terms, because usually it’s the amount of mortgage a lender is prepared to offer you, in relation to the property’s value. So when it comes to buying or remortgaging a property, your LTV becomes critical.
Mortgage LTVs vary for every lender and property, but they usually sit somewhere between 50 to 95 per cent.
Generally speaking, the lower your LTV, the better your chances of finding a good mortgage rate. This is because banks and lenders tend to give preference to low risk borrowers, and a lower LTV gives them less mortgage to hand out and therefore less risk to take on.
So if you’ve got a good chunk of the deposit ready to put down, or you’re remortgaging and already hold a lot of the property’s equity, your LTV will be more attractive to a lender. You’re presenting less risk, and should find you’re able to unlock more competitive mortgage deals as a result.
If you’re in the higher LTV rate bracket, with an LTV of 90 or even 95 per cent, it’s not all bad news.
Lots of people fall into this category, usually because their deposit is small. Lenders have been quick to cater for this group, and we’re seeing lots of mortgage arrangements on the market for high LTV borrowers. Shop around but bear in mind, the rates will be higher, as you’re giving the lender more risk to take on.
We’ve recently published a review of the best buy-to-let mortgages in the UK, comparing a range of situations against the buy-to-let options on the market in 2017.
It also covers buy-to-let LTV in depth, but in a nutshell, buy-to-let presents a higher risk to lenders. This means you’ll usually find the maximum LTV you’re able to secure will be between 75-80 per cent and the rates will be higher than for residential deals.
There are deals out there though, and our comparison guide gives an excellent starting point for researching your next buy-to-let mortgage move, regardless of your LTV.
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