LTV (or loan-to-value) refers to the percentage of a loan that is underwritten to the value of an asset that is purchased. Loan-to-value is most often used by banks, building societies and other financial lenders to represent the amount they are willing to lend against the value of the asset. For example if a borrower wishes to borrow £180,000 to purchase a house valued at £200,000, the LTV would be 90%.
Below reveals the loan-to-value you would need to apply for the following house valuations.
LTV Table Examples
|LTV||£50k Property Value||£100k Property Value||£150k Property Value||£200k Property Value||£250k Property Value|
|Amount borrowed at: 100%
|Amount borrowed at: 95%
|Amount borrowed at: 90%
|Amount borrowed at: 85%
|Amount borrowed at: 80%
|Amount borrowed at: 75%
|Amount borrowed at: 70%
|Amount borrowed at: 65%
|Amount borrowed at: 60%
If you were interested in a property valued at £150,000 and had a deposit of £15,000, you would apply to borrow the remaining £135,000, which, as we can see from the table above, reflects a 90% LTV mortgage.
If you were interested in a property valued at £200,000, and you had £30,000 available for a deposit, you would need to apply for an 85% LTV mortgage worth £170,000.
Be sure that you factor stamp duty into your calculations! (Find out more about stamp duty here). If you are purchasing property worth over £125,000, you will face a fee of at least 1%. This can be added to the mortgage, but it may push you onto the next tier of LTV loan (e.g. 85% to 90%), which is likely to be a little more expensive.
Why LTV Matters: The Relationship with Cost
Higher LTV mortgages tend to be more expensive (higher interest rates) than one with a lower LTV percentage. This is due to the extra risk that a higher LTV mortgage imposes upon lenders.
For example, an 85% mortgage may have an interest rate of 4%, whereas the 90% mortgage might have an interest rate of 4.5%, meaning that monthly payments will be higher, all else remaining the same.
What Are The Risks?
If you take out a tracker mortgage, a rise in the base rate will lead to higher monthly payments. This is more of a risk for high-LTV mortgage holders where repayments are already more costly.
Before taking out a tracker mortgage at 90% LTV, it might be worth contemplating what your costs might be if rates do head upwards. See our calculator: what if rates change?
Rise and Fall in Value
Any rise or fall in the property value will increase or reduce the value of your deposit (as a overall percentage). Given a 90% LTV mortgage and a 10% deposit, should your home value fall by 5% it would technically leave you with a 5% deposit.
In a worst-case scenario, your home value could drop by more than your deposit, leaving you in negative equity (should you sell your home you would not make enough back to pay of your mortgage). This will make getting another mortgage deal more challenging.