What Is LTV? Why Is LTV Important?
Loan to value ratio or LTV, is a measure of how much money you will be borrowing against the value of the property being put forward as collateral to the lender. Or from the lender's perspective, it is a measure of the maximum % amount of mortgage they will consider lending you on any given mortgage product.
Generally speaking, the lower your LTV is, the more attractive you will be to a potential lender which can mean you gain access to their best mortgage rates. Use our LTV calculator below to better understand your options.
How does LTV change my mortgage options?
First and foremost, LTV will put a maximum on how much you can borrow for a particular mortgage deal. Lenders will typically arrange their mortgage offers into LTV tiers to reflect how risky they feel each customer is. The lower the LTV, the better the rate the lender will offer as they view you as having less chance of falling into payment arrears and should that happen, they have more chance of recovering all of their money through a repossession.
Is my LTV good?
Below is a table of the typical LTV tiers used by lenders. Alongside each we have provided some anecdotal commentary to give you an idea of how a lender may structure their mortgage product catalogue as well as how they may change their attitude to risk. This will vary from lender to lender so please take this as a guide only:
|50% LTV||Lowest rates available, more relaxed lending criteria can be applied|
|60% LTV||Often still the lowest rates available and more relaxed lending criteria can be applied|
|70% LTV||Very good rates available and relaxed lending criteria can be applied|
|75% LTV||Good rates available. This tends to be the last tier where lending criteria can be more flexible|
|80%||Fairly good rates available. Standard lending criteria often applied|
|85%||Average rates available. Standard lending criteria often applied|
|90%||Higher rates available. Strictest lending criteria applied|
|95%||Highest rates available. Strictest lending criteria applied|
How does LTV affect lending criteria?
As already mentioned, lenders usually offer their most competitive mortgage deals to borrowers they consider lowest risk. In order to lend to as many people as possible in these low risk categories it is not uncommon for a lender to become more flexible on who they will lend to or what type of property they will lend against.
A few examples are:
- lower credit score required
- more willing/able to accept bonus or commission income
- able to consider an interest only mortgage
- able to lend on a high rise flat or ex-council building
- willing to consider a short term contract worker
- less trading history required for self employed borrowers
- willing to accept borrowers who do not have permanent rights to reside in the UK
So what about high LTV mortgages?
It is not unusual, particularly for first time buyers, to have access to a smaller deposit. This will often mean you are restricted to 90% LTV mortgage or 95% LTV mortgages. Whilst this puts your into one of the higher risk categories it doesn't mean it's all doom and gloom!
There are several lenders now willing to offer loans up to 95% LTV, the tough part is making sure you can step through the hoops they put in place with their strict lending criteria. You can read our guide which will help explain what you will need to have in place before considering an application.
In the past, lenders would even consider 100% LTV mortgages. However, after the financial crisis of 2008 these are no longer widely available.
Buy to let LTV
Buy to let mortgages are more complex than standard residential loans and lenders see them as a higher risk. As a result the maximum LTV available is typically around 75% to 80% of the property value.
You can review our guide to buy to let for more information.
New build LTV
Some lenders also see mortgages for newly built property as a higher risk so be sure to keep this in mind if you have a small deposit.
Loan to value or LTV plays a large role in defining maximum borrowing amounts available. It also has an impact on the flexibility a lender is willing to offer when it comes to deciding if they will lend to you in the first place. Use our LTV calculator to give you an understanding of what options could be available and when you are ready, just get in touch with us for some free mortgage advice.