What does 'Loan to Value' mean when buying a property?
Find out what Loan to Value means when you are buying a property. 'What does Loan to Value mean?' plus over 150 other property related terms and jargon in plain English
Loan to Value
A mortgage lender will consider Loan to Value (LTV for short) when looking at a mortgage application.
The figure is expressed in percentage terms as the amount of the property value they will be funding versus what you are putting down.
So if the property is worth £200,000 and you need a mortgage of £180,000 your loan to value is 90% - (£180,000/£200,000) * 100.
The higher your LTV the more risky the loan is for the bank as the property market only needs to move down a little for the property price to be less than the mortgage loan. That means the higher the LTV, the higher the interest rate they will want you to pay.
To find out more about the smart way to sort a mortgage pick up a copy of my ebook How to Really Buy a Property.
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How to Really Buy a Property
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Chapter 2:
The Media and Property Prices
"... equity, when the price of someone's home becomes less than the value of the loan they took out to buy it, is ever popular. As we have already seen, at a local level, property prices rise and fall all the time. This means there are always people in negative equity. Those who take out 100%+ mortgages are immediately in negative equity but there is little talk of it in the press when the overall market is..."
"... into their piece the right way the truth sometimes has to be bent a little.
Lets take an example where the journalist needs to write a story about someone who took out a loan and now cannot afford to repay it.
The facts might look something like this:
Ms X took out £200,000 loan on a..."
"... a story about someone who took out a loan and now cannot afford to repay it.
The facts might look something like this:
Ms X took out £200,000 loan on a £300,000 house
Ms X was fired from her job due to incompetency
Ms X cannot find a new job because of the way she lost her last one
Ms X..."
"... person needs to sell
It is not possible to rent the property out and cover the mortgage
There are not enough buyers on the market to achieve the price necessary to cover the repayment of the loan
For all of these to coincide is very, very rare and generally only when a whole economy goes..."
Chapter 5:
Is the Property Market Overvalued?
"... can we tell if any particular property market is over-valued? Only if there are absolute crystal clear facts at our disposal. In the 2007 sub-prime mortgage market of North America it was obvious that most borrowers were not going to be able to pay back their loan when the initial promotional interest rate ended and the market was being supported by further such borrowers on further such unsustainable..."
Chapter 6:
Property Bubbles and Market Crashes
"... if all the pounds and dollars were there much is on loan to others and so could not be made available to every account holder immediately. And when it comes down to it the paper it is printed on is not tied to anything except confidence. We all have to believe, otherwise it is worth nothing and society would stop..."
Chapter 8:
Buying to Let / For an Investment
"... your purchase be impossible to sell or difficult to rent.
A further issue to consider with off-plan is what the development will look like when your apartment is ready and your bank is looking for you to start repaying your loan.
Most developers sell new sites in stages and if there is a..."
"... lay vacant or to subsidise them when tenants moved in.
Valuations by agents revealed that if he needed to sell fast he would have to accept a ten to fifteen percent loss which, after paying their fees, might not cover the loan.
The investment company blamed an unusual and unexpected..."
Chapter 9:
Getting on the Property Ladder
"... Four:You buy a flat for £200,000 with a 100% mortgage and three years later it has lost 10% of its value because the market has fallen, the total cost to you is £20,000 but you have a place of your own and you have already paid off some of the loan. Keep it for the long term and, as history has shown, your loss will have been temporary...."
"... 125% mortgages are also useful in that they provide you with extra capital to improve the property. Done properly this will secure your investment's value. Further it may help rid you of credit card debts and other high interest loans that were stopping you raising the deposit in the first place.
..."
Chapter 11:
Sorting Out Your Mortgage
"... against us,
we haven't been in the country much in the last few years so have little credit history,
we had an argument with a loan company five years ago that went to court,
we have moved home six times in the last three years and never got on the electoral register,
we have never..."
"... Debts - if you are paying off a credit card or a small loan on a monthly basis, in the rush to apply for a mortgage you may forget about it. But the lender will find out and usually remove that amount from the mortgage application. In the worst case scenario they could refuse to lend to you because they are no longer confident you have told them the whole..."
"... with loan Companies - These are not unusual and you may have gone to court and won the day. Many people do when the creditor puts unusual clauses in very small print within the contract. But to the lender you are now applying it means you may be trouble - rightly or wrongly - and they could take a negative view on your application for this reason..."
"... Been in Debt - The one that catches so many people out. You can be very pleased with the sensible way you have handled money and never needed a loan. Or perhaps you have had Mum and Dad to help you out. From the mortgage lenders point of view, however, there is nothing to show you know how to handle debt and so you are more of a risk. This could affect how much they will want to lend..."
"... applied for credit - Every time you apply for credit your credit rating takes a hit, even if you ultimately don't take out the loan. The classic case is with store cards and goes a little like this. Mr X is out on a shopping spree and in several shops he is offered a discount on his purchases if he applies and pays for his purchase with the store's credit card. He has the money in the bank but he could make substantial savings so he takes the cards and pays them off within the month. But each card has represented an application for credit and so hit his rating. It will recover but if he applies for a mortgage in the near future he may be turned down as the lender is suspicous about the amount of credit he has been taking..."
"... if you have only arranged an Agreement in Principle there is still a great deal which could affect the bank's actual decision. The credit scoring they carry out may radically change what you can borrow. As such if you have found a really good loan or you expect to find a property quickly you should apply for the mortgage there and then even though you do not have a property in mind. Most financial advisers and lenders will try to resist this as it means more work without a full guarantee that they will get the business. Insist on it. This means you can be completely confident when you offer that you can afford it and the process will proceed smoothly and without..."
"... You Need Your Mortgage to do? -
This may sound like a bizarre question but many people loose the property they are trying to buy because they only consider a single aspect of the mortgage or loan product that they are choosing. You need it to do two things:
Be the best deal on the market..."
"... if the mortgage product that is right for you will take ten weeks to be issued there is a good chance the vendor will get bored, or suspicious, and go in search of another buyer who can get a loan faster. The vendor usually suspects there must be something wrong with the buyers credit if things are taking too long. From your perspective you loose the property, the survey fee, the arrangement fee, legal fees and..."
"... this crucial step ensures you do not find a perfect home only to watch it disappear because of unexpected factors that could have been foreseen and resolved. While you are gathering together properties to view you should also be gathering together the documents you will need for a loan and ensuring there are no skeletons in your credit..."
Chapter 12:
Choosing a Conveyancer or Solicitor
"... is expecting them to pay for the second solicitor as well. These situations are common where:
There is a high loan to Value (LTV) - in other words the buyer is borrowing most of the money.
The solicitor is small and relatively unknown - and this usually means cheap which was why they were..."
Chapter 14:
Viewing Properties and Making Offers
"...If you will need a mortgage to buy a property the lender will be able to supply you with an agreement in principle based on a few simple questions. They will generally want to know how much you earn every year and how much you pay in debts every month (say to credit cards or bank loans). They take one from the other and come up with a figure that they think you can afford to pay them every month. Calculating this backwards over the term of the mortgage (the time they will give you to pay it back, usually twenty-five years) gives the amount they are prepared to loan.
..."
"... an AIP is also a useful exercise in helping you consider your budget carefully. Not every lender will offer you three and a half times your salary (something that many first time buyers assume) as a mortgage. You will also start to get a feel of the various restrictions that certain mortgage products have. Some, for example, do not allow you to buy in blocks more than four stories high, others will only loan on properties with more than two bedrooms, and so..."
"... to 70 years: although the number of lenders prepared to secure a loan on this will have reduced there will still be a healthy number with competitive products that will make it an easy purchase. Value will definitely have decreased however because of concerns over resale value or the cost and hassle of extending the..."
Chapter 17:
The Property Buying Process in Theory
"... is empty and the buyer wants to get in fast.
If you are raising the funds by applying for a mortgage you will need to find a lender that thinks it is a good idea to loan you the money. The lender is essentially interested in four things:
Are you a good borrower?
Is the property worth..."
"... a lender looks at you they are really looking at your earnings (that you can afford to pay the loan back on a month by month basis) and your credit history. Your credit history is a track record of previous debts. Every time you pay a credit card or loan on time you get points. The points go to make up your credit score. Every time you apply for credit such as a loan for a car, and every time you are late making a payment, you loose..."
"... if you have not been in debt in the past you will also have a poor credit history and a low credit score. This is because there is no proof that you are any good at handling debt. It is the financial angels of life who have never had a credit card or taken a loan that can have the biggest problems securing a..."
"... important your credit score is also depends on how much of the property's value you want to borrow. This ratio is known to lenders as loan To Value (LTV). As an example if the property is worth £100,000 and you want to borrow £95,000 your LTV is 95%. In the lenders eyes that's risky business. You are only putting in five percent and you want them to stump up the rest. In this situation you may have to provide much more proof of your financial stability than a buyer who is prepared to go halves with the..."
"... to find out.
It is always worth remembering that most of what your solicitor does is actually not for you, but for the lender. The solicitor passes on what he finds to an underwriter who works for the lender. If they are concerned they can decide not to forward you the loan.
- Is it..."
"... order to complete successfully your solicitor will need to have the cleared funds to do so. This may either be the cash from you or the loan from your lender. If the money is coming from you any cheque must have cleared by this day. If it is coming from your lender the solicitor traditionally has to give them five days notice. This is known as drawing down the mortgage...."
"... some changes.
The Title Deeds: These will either come from the vendor or the lender (if there is currently a loan secured on the property). If it is the latter the solicitor will need the mortgage lender's name and account number as well as written permission to apply for them.
The Sellers..."
Chapter 20:
What a Property Survey Really Means
"... will say, "The property is worth £250,000 as long as the windows are sound. Until this has been established no one (including the lender) should pay more than £240,000". The surveyor is not saying that the windows require £10,000 worth of work. He cannot because he is not qualified to cost repairs. So he chooses an arbitrary figure. It is simply a way to make sure something is checked before a loan is secured on the property or you pay out the..."
Chapter 21:
Legal Matters in Property Purchases
"... have but are not always offered.
Your finance company who will provide the mortgage basically asks the question: "Are you, the buyer, a good bet to lend to and is the property you have offered on a good bet to secure that loan on should you ever default".
The solicitor also has a set of..."
"... internet.
In summary what your solicitor needs to find out falls into two parts:
What he must find out because the lender says he should before they will give you the loan or mortgage on the property
What he thinks he should find out on your behalf
In all conversations with your..."
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- Agreement in Principle
- Repossession
- Surveyor
- Tenanted Property
- Title Deeds
- Negative Equity
- Equity
- Lifetime Mortgage
- Cash Buyer
- Loan to Value
- LTV
- Credit Rating
- Survey Sent to Panel
- Survey Requested
- Survey Instructed
- Survey Booked
- CML Handbook
- Pre Arranged Mortgage
- Financial Adviser
- Independent Financial Adviser (IFA)
- Bridging Loan
- Credit Check
- Credit Agency
