Loan-to-Value Ratio – What Does This Mean For Me?

Understanding Mortgages

If you are thinking about a mortgage, the loan-to-value ratio, the LTV, is an important factor that lenders will consider when reviewing your mortgage application and deciding whether to grant you a loan or not. It will influence the interest rate you are likely to be charged and relates to the size of the mortgage you need in relation to the value of the property you’re buying.

For example, if you want to buy a property worth £300,000, and you have £60,000 put aside to use as a deposit, you’ll need a loan of £240,000 in order to complete your purchase. This means that your loan-to value ratio will be 80%, as £240,000 represents 80% of £300,000.

As you’d expect, the higher the ratio, the riskier it is for the lender offering the mortgage, and hence the interest rate charged on your mortgage is likely to be higher to reflect this fact. Conversely, low LTV ratios represent less of a risk, and are therefore likely to attract lower interest rates.

First time buyer or ready to review your mortgage rate? Get in touch soon as interestes rates are predicted to rise in August or October.