Loan to Value (LTV)
Loan to value is often expressed by the letters LTV. It describes the cost of the mortgage as a percentage of the value of the property it is attached to. For instance, if you took out a mortgage worth £80,000 and your property was valued at £100,000, your loan to value percentage would be calculated at 80%. The percentage should always be less than 100%, since most lenders will not consider lending the full value of a property.
The loan to value percentage can vary markedly depending on how much you can put towards the cost of the property. Many first-time buyers opt for a 95% LTV deal, opting to put forward a 5% deposit and to get a 95% mortgage. However, the more you can put down, the better the deals are.
For instance, lenders typically offer better interest rates for lower LTV values. Some deals are only available to those who can meet the terms for a 75% LTV or even a 60% LTV, for example. A 60% loan to value deal would require the buyer to put forward a deposit worth 40% of the property value. The remaining 60% would then be covered by the mortgage.
Most buyers will have an idea of the percentage of the property value they can meet by way of a deposit. This could come from savings or from the sale of their existing property. They can then take the time to see which deals from which lenders are the best ones on the market. Lower interest rates are typical of lower LTV values; for example, lower rates are usually seen for a 60% LTV deal compared with a 95% LTV deal.