LTV (Loan to Value) - Size of mortgage required compared to property value
The loan to value is typically given as a ratio expressing the size of the mortgage as opposed to the value of the property.
Some mortgages lenders better value mortgage products may only be available if customers are borrowing less than a set proportion of the value of the property. Mortgage lenders offer more favourable deals to customers who are contributing a sizeable deposit themselves towards the property and thus are wanting to borrow a smaller mortgage amount. This means a lesser risk to the lender of an unrecoverable debt.
LTV Example - Loan to Value and Remortgages
Mortgage lenders will feel more comfortable when customers have enough equity in the property for them to be reassured that if the customer stopped making their repayments, the lenders could then sell the property and recoup the money they are owed.
Example. A property is valued at £100,000. The customer wants to borrow £60,000 then the Loan To Value is 60%.
LTV Information
The loan to value ratio only really comes in to play in a flat or falling property market. Mortgage lenders could begin to worry about being left with a hard to sell property should the borrower fall behind with their repayments. Indeed if the housing market and prices fall far enough, the mortgage lenders could face having to sell the property for less than the remaining amount of the mortgage. Then they face being unable to easily recover the debt owed.