LTV (Loan to Value) Calculator
An LTV or a loan to value calculator is a tool to help you work out how much you can borrow and what rates you can expect to get from a mortgage provider. The lower your LTV, the better the mortgage rates providers can offer you. Using a calculator can give you an indication of how much you can expect to borrow.
Keep reading to learn more about LTV rates, what it is and how it’s calculated.
What do current LTV rates look like in 2021?
LTVs for mortgages are usually between 60% and 95%, but there are also 100% mortgages or ‘no deposit’ mortgages available to some borrowers. When it comes to bridging loans specifically, however, 100% bridging loans are not common.
The LTV mortgage rates depend solely on how much you can afford to part with as a deposit. If you’re hoping to secure a 100% mortgage, you might have to be a borrower already, or the lender might require a guarantor, which is someone who’ll pay if you default on payments.
What kind of LTV rates are providers offering and how do I find the best deal?
To find the best LTV rates, you need to conduct a little bit of research. First, try and get your LTV ratio as low as possible; this will make you more attractive to lenders and will make your interest rates lower as you pose less of a risk. After you’ve worked out how much you need to borrow, then you can use a comparison tool to help you locate the best providers on the market.
If a mortgage takes too long to secure, you can use a bridging loan to buy the property quicker. Compare bridging loan providers.
What is loan to value? What does LTV mean?
The loan to value ratio is worked out as a percentage, and mortgage and bridging loan providers will use this percentage as an indicator of how risky it is to lend money to you. The lower your LTV percentage, the less risky you are to a lender and the more choices you have when it comes to picking the best rate.
LTV mortgage example:
Let’s say you want to buy a property for £300,000 and you manage to scrape together a deposit of £45,000, that’s a 15% deposit. This means your LTV is 85% and you need to borrow £255,000.
How is LTV calculated/worked out?
If you’re wondering what your LTV is, it’s pretty straightforward to work it out. LTV can be calculated using a simple formula — divide the mortgage loan amount by the value of the property.
What external factors influence LTV?
Many external factors can influence LTV, including inflation, the economic climate and the state of the housing market. LTV is largely impacted by supply and demand, so outside factors can affect it quickly, the most recent example being the pandemic where base interest rates plummeted to 0.1%.
What does a good percentage on LTV look like?
Most providers are looking for at least an 80% LTV, with anything below 80 to be considered as low LTV. This means borrowers will be expected to fork out 20% of the property value upfront before securing the mortgage.
The LTV is slightly lower for bridging finance, with most providers expecting the borrower to provide at least a 25% deposit, which means you need an LTV of 75%.
What do I need to know about LTV with mortgages & homeownership?
If you’re going to take just one point away from this article, it’s that the lower the LTV the better for homeowners. The lower the LTV, the better mortgage choices and the lower the interest rates.
What are the pros and cons of a high LTV?
If you’re looking for high LTV mortgages, what are the pros and cons? Read below.
Pros of high LTV
The most obvious benefit to a high LTV mortgage loan is that you can buy your property quicker because you don’t need to save up as much cash. Alternatively, if you do have the funds, but you’d rather spend them on renovation and general home improvements, you might also opt for a high LTV mortgage loan.
Cons of high LTV
High LTV means one thing to lenders: higher risk. And higher risks brings with it higher interest rates. So expect to pay more on your monthly repayments if you opt for a high LTV mortgage.
What are the pros and cons of a low LTV?
If you’ve got a hefty deposit or you’re remortgaging, and you have a large amount of equity, you might want to consider a low LTV mortgage — but what are the pros and cons?
Pros of low LTV
You’ll pay lower interest rates, and you’ll pay less for your property overall. As you’re less of a risk, lenders will offer you a wider selection of mortgage loan options.
Cons of low LTV
You’ll have to part with a larger sum of money upfront if you’re applying for a low LTV mortgage. This might mean home improvements have to wait until you have the cash to invest, or you might want to take out a home improvement loan.
Does equity change or affect LTV?
Yes, it does. If you’re remortgaging and have high equity in your property, you can apply for a lower LTV mortgage, which means lower interest payments over the coming years, which could save you a lot of money.
Does using a loan for Buy-To-let affect LTV?
The LTV ratio required for buy-to-let mortgages is usually lower because the lender has more risk. If you’re purchasing a buy-to-let property, the most common LTV is 75%, which means you’re required to part with a much higher deposit than residential buyers. It’s important to note that some lenders will lend to you with an LTV higher than 75%.
Do LTVs change for construction projects?
The cost of construction isn’t considered when working out the LTV of a mortgage loan. Instead, the value of the property and loan amount required is what is looked at.
Do LTVs change based on what the loan is for in general?
LTV can be affected by the type of property you’re developing. For example, some lenders might not give high LTV mortgage loans for developing a new build flat, but if you’re developing a new build house, you might be able to unlock a higher LTV. This really differs from lender to lender, so make sure you do your research for the type of property you’re looking to mortgage and grow your portfolio with.
Before you go
Although LTV is important when applying for a mortgage, bridging finance or remortgaging, it’s not the only factor lenders will consider in your application. Lenders will also look at your credit score. If you’re applying for a bridging loan, they might also check your debt-to-income ratio — you’ll need a stable financial situation to be considered for a bridging loan and a mortgage.
“If you’re considering bridging finance, you don’t have to be an expert to be accepted for it”, says Market Finance Solutions, specialists in bridging finance, “Whether you’re new to property investment, or a long-term landlord, bridging finance is available for all levels of experience. The simple process and flexibility means that your finance can be tailored to your needs.”