Loan to Value Quotes
What is LTV (Loan to Value)?
Loan to Value (LTV) is the term used to define the financial position of the borrower, after the available deposit has been offset against the total of the mortgage loan. In simple mathematical terms, the calculation is as follows: LTV = the total amount required by the borrower, divided by the actual price of the property x 100.
To use a comprehensible example: Where the outright cost of the property is £100,000, and the available deposit amounts to £10,000, the LTV will be £90,000 or 90%. Primarily the LTV calculation is a formula for assessing the risk factor when lenders consider applications for mortgage finance. The premise of this assessment is that the risk to the lender increases proportionately as the amount of equity (the actual cash value of the property, less the amount of outstanding loan) decreases.
Often the risk factor of high LTV loans may be reduced by an insistence on the part of the lender that applicants take up mortgage insurance, thereby protecting against defaulted payments or possible repossession. However, the burden of paying extra costs in insurance premiums will hardly be an attractive option to the prospective borrower. Those borrowers on a lower scale LTV (usually below 80%) are far more likely to be offered lower or more favourable rates of repayment, simply because of the lowered risk factor they present.
Other considerations are also linked in to LTV when the lenders are assessing mortgage applicants. These can include poor credit scores, a history of late payments, high debt-to-income comparisons and uncertified proof of earnings. There is often some variation on LTV rules, dependent on the lender, and for certain special or linked deals the LTV may be set at an artificially low level for a short time in order to appear more attractive. But in general, high LTV advances, from 90%-100% LTV, are available only to borrowers who pass the most stringent of credit checks.
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