Your LTV is calculated by dividing the value of the mortgage you need by the value of your property (or the one you want to buy). For example, if you want to buy a house with a value of £250,000 and you have a deposit or equity of £100,000, then you will need a mortgage of £150,000. Here is the LTV calculation:
£150,000 / £250,000 = 0.6
0.6 x 100 = 60
LTV = 60%.
LTV is all about how much your mortgage borrowing is in relation to how much your property is worth. It's a percentage figure that reflects the proportion of your property that is mortgaged, and the amount that is yours (the amount you own is usually called your equity). The value of your property will need to be agreed with the mortgage lender and they do this usually through a property survey. If you are borrowing with your current lender, they may accept your last valuation or request a new valuation.
Most mortgage lenders price their mortgages in LTV bands, and this allows them to offer lower mortgage rates for lower LTV mortgages. They do this because a lower LTV means there is more equity in the property. Should house prices fall, there is the risk that the value of the property is less than the amount of the mortgage. If the lender needs to recover the mortgage debt by selling the property, they prefer to be more certain they can recover the full debt. For example, at 60% LTV, house prices have to drop by 40% before the lender will lose money compared to 90%, where a 10% drop would result in negative equity.
Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.
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A high LTV, for example above 75%, is usually more expensive than a lower LTV. You can nearly always get a better mortgage rate with a lower LTV. The lowest LTV band is usually 60% – at this point, most lenders do not reduce their rates any further for lower LTVs.
There is no definitive good LTV, and unlike a credit score, it is not connected to your creditworthiness or a score that decides if a lender will give you a mortgage. LTV allows lenders to price their mortgages based on how much equity is in the home at the point you purchase or remortgage. This is important because lenders rely on the fact that should you default on your mortgage, they can sell the property to recover their debt and costs. If you have very little equity in your home, meaning you have a high LTV, then it would only take a small reduction in house prices to result in negative equity and a potential loss for the lender.
In the UK, the maximum LTV without the help of a family member or guarantor mortgage is typically 95%, but might vary from time to time
If you already have a mortgage, you can reduce your LTV by repaying more off your mortgage. Our guide how to pay off your mortgage early contains five steps to help towards reducing your mortgage debt. If you are a first-time buyer, then reducing your LTV is all about saving for a larger deposit. You can get some ideas on how to boost your savings in our guide 7 tips for saving for your first home.
The other side of LTV is the value of the property. Increasing this while maintaining or reducing your mortgage will reduce your LTV. While the market will dictate your property’s value, you can ensure your home has the best value by keeping it well maintained. You may be able to increase its value by upgrading to energy-efficient features such as high-quality glazing and doors and heating systems, improving kitchens and by extending the property to add bedrooms and en-suite bathrooms.
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A mortgage broker specialises in finding mortgage lenders who will meet your needs for a mortgage. They do this by providing you with advice and recommending the mortgages most suitable for you. They will then manage completing your mortgage application.
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