What is loan to value or LTV for a mortgage?
In simple terms, LTV is a calculation of how much a lender is prepared to lend you based on the cost of the property you want to buy or remortgage. It’s calculated by dividing the total amount of the mortgage by the current market value of the property. The result is then multiplied by 100 to give the percentage figure. The higher the number, the higher the LTV and the more expensive the mortgage but If you have a higher deposit amount, you can easily get a low mortgage rate. It is also worth noting that mortgage rates vary with a different mortgage lender.
What loan to value ratios are there?
There are three main types of loan to value ratios: 80%, 65% and 50%. This means that the maximum amount you can borrow is 80, 65 or 50 per cent of the property’s current market value respectively. These figures are used because lenders use them to calculate whether they will accept your application and what type of mortgage they will offer you. They also work out how much monthly payments you can afford to pay each month. There are other variations within these ranges too.
How loan to value (LTV) ratio affects your mortgage?
The lower your LTV, the cheaper the mortgage. However, the higher your LTV, the more expensive the mortgage. You could end up paying more than double the price of the house just to cover the difference between the two amounts. So, if you can afford a £200,000 home, but only have a £100,000 deposit, you might struggle to get a mortgage with a 75% LTV. Irrespective of all these, there are other factors like your credit rating that also affects the mortgage application.
What is loan to value (LTV) ratio?
LTV stands for ‘loan to value’ and refers to the proportion of the purchase price of a property that you would need to put down as a deposit before being granted a mortgage. For example, if you were planning to buy a property costing £200,000 and wanted to borrow £150,000, the LTV would be 75%. This means that you would need to put a minimum of £75,000 into the property as a deposit. You can get a better mortgage deal if you have a lower LTV ratio.
How do I calculate my loan to value ratio?
To calculate your LTV, divide the total amount of the proposed mortgage by the current market price of the property. Multiply this by 100 to arrive at your LTV. In our example above, we would divide £150,000 by the current market price, which gives us 75%. We multiply this by 100 to arrive a figure of 750. Therefore, our LTV is 75%.
What is a good loan to value ratio in the UK?
A good loan to value ratio is around 70-80%. A high LTV means you will have to make larger deposits and pay more interest over time. But, it also means that you will be able to get a lower interest rate. On average, a person needs to save about 25% of the purchase price of their new home to finance the rest. This means that a £50,000 deposit will take about four years to build up.
What is the maximum LTV a mortgage lender will allow?
Some lenders won’t even consider lending more than 90% of the property total value. Others may limit it to 85% or 80%. Some lenders even go as far as 70%. However, some lenders will not let you apply for a mortgage unless you have a minimum LTV of 60%.
Which loan to value ratio should I go for?
It depends on your circumstances. If you want to move quickly, then a low LTV is best. It will mean that you don’t have to save so much money upfront. The downside is that you will probably have to pay more interest overall. Also, you will have less equity in the property when you eventually sell it. If you have a large family and want to live close together, then a higher LTV is better.
What happens to my LTV if the value of my house drops?
If the value of your house falls, then your LTV will increase. Your LTV will rise because you will still owe the same amount of money, but the cost of the house has gone up.
How does my LTV ratio affect remortgaging?
When you remortgage, your LTV will drop. This means that you will have less debt to repay, and therefore, less interest to pay. You will also have more equity in your home. This means that you can potentially borrow more money, which will help you reduce your monthly payments.
What are the different LTV thresholds for mortgages?
The LTV threshold differs depending on whether you are buying a first-time buyer’s discount or an enhanced discounted rate. There are three main types of mortgage: standard variable rates, fixed rates and tracker rates. Each type of mortgage has its own LTV threshold.
