Loan To Value – What Does It Mean?

The Loan to Value of a property or LTV is the ratio of borrowing against the value of your property.

During the present economic climate lenders are putting tighter restrictions on lending and especially the amount they are willing to lend against the value of a property. It is important to remember that a mortgage lender will always value the property at a lower amount than that of an estate agent. An estate agent will value your property at the highest amount they feel a buyer will pay, but a lender will value your property at an amount that will guarantee the quickest sell if you were to be repossessed and they had to sell your property quick to recover the outstanding loan.

To calculate the value of your property for the purpose of mortgage or remortgage, the lender will perform a property valuation, in either of three ways depending on their individual processes and criteria.

These are commonly known as

• Desk Top – valued by looking a specific criteria over the internet
• Drive by – a valuation profession valuing your property from outside only
• Full Valuation – a valuation professional valuing your property internally and externally

From the information gathered from the valuation of the property, the lender will assess the risk associated with the loan and will be able to confirm the maximum they are willing to lend you on a property of that value.

At present most lenders are only willing to lend 90% on the value of a purchased property with the purchaser putting a minimum of 10% deposit or 85% against a property being remortgaged.

When calculating the interest rate the lender will use the valuation to assess the level of interest to be charged. In most cases the higher the LTV, the higher the risk to lender, so they will apply a higher interest rate to the loan.

When either going direct to a lender, you will need to coordinate your own loan or going through a broker who should hand hold you through the process, the initial decision in principle will be subject to the property valuation and in some circumstance underwriting as well.