LTV Explained
LTV or Loan To Value is a measurement of the ratio of what you’re borrowing to the value of the property.
When you get a mortgage or remortgage, your lender will often carry out a remortgage valuation on the home that the mortgage is paying for. The amount of funds that you’re actually borrowing from the lender will be a percentage of the property’s current market value. This percentage is expressed as the LTV for the mortgage. Whether you have an adverse or prime remortgage will dictate the LTV that lenders find acceptable to lend on.
The LTV that you borrow against will also dictate your interest rate and APR. Better credit and low LTV's, attracting lower rates.
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If you’ve already owned property and sold this to buy your current home, you will naturally have been able to use the proceeds to pay for part of the current home, thereby potentially reducing the percentage of the property’s value that you had to borrow from the lender. However, if you were a first time buyer, the chances are you’ll have needed to borrow a higher percentage of the home’s value from the lender.
Risk
Lenders carry out a number of checks and calculations when they assess the risk associated with any lending you’ve applied for. One of the factors that they consider is the LTV, as if you’re borrowing a higher percentage of the property’s value the lender will see this as a bigger risk.
Typically, a lender considering giving you a mortgage or remortgage on a property will carry out a formal valuation on the property. Although this is not the same as finding out the actual value of a property, which you can only really do by selling it, this is a way for the lender to assess the property’s value and how this relates to what you’re looking to borrow.
This may affect the range of mortgage or remortgage deals that the lender is willing to offer you, and you may find that a higher LTV means higher interest rates and less favourable terms in general.
Additionally, the lender may carry out extra steps as part of the mortgaging or remortgaging process when there is a high LTV involved, so that they better protect their own interest in the deal.
Available Deals
When you’re shopping around for mortgage deals, you may find it useful to use a remortgage calculator to assist you in getting the best idea possible of what your finances will look like if you go ahead. You may find that having the LTV to hand will aid you in these calculations, as this will almost certainly be taken into consideration when you come to actually apply for a mortgage or indeed remortgage.