Loan to Value Ratio (LTV) is a critical piece of information for homebuyers and remortgagers alike. It can drastically affect the cost of a mortgage, as well as one’s borrowing power. Generally, a low LTV ratio is desirable, while a high figure is less so.

The LTV ratio is an expression of the size of the loan relative to the property value. This figure is examined closely by lenders in order to ensure that they will not lose money if the borrower fails to keep up with the repayment schedule. If this occurs, lenders can repossess the house and sell it in order to recoup their losses.

What is the risk of a high LTV?

The risk of the property value dropping to levels below the loan balance is higher with a high LTV ratio. As such, lenders will offer stricter terms, such as higher interest and fees, when borrowers have a higher LTV. First-time buyers typically feature a higher LTV than those who are moving from one house to another.

What is the benefit of a low LTV?

Having a bigger deposit relative to property value will result in better terms and lower repayments overall. On the flip side, buying with smaller deposits (which results in higher LTV) will allow you to buy sooner and benefit from any increases in house prices.

Ultimately, LTV ratio plays a major role in the mortgage process and should be examined carefully by potential buyers. A lender’s willingness to loan can depend heavily on this figure, so it is important that all parties are aware of its implications.

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