Loan to value is used every time someone looks to purchase, refinance or raise additional finance on property or land. Even if you’re not aware of it, the lender and any broker you may be using will be discussing the loan to value in relation to the best deal for yourself.
The ‘loan to value’ or LTV is the ratio between how much you want to borrow and the lenders valuation of the property (or purchase price) – so if you wanted to borrow £75,000 on a property valued at £100,000, the LTV would be 75%.
The LTV a lender will allow is determined by a number of factors and for your convenience, I have listed the main ones below as a guide. It’s important to note that ‘loan to value’ is used for secured loans, bridging loans, commercial and residential mortgages – pretty much any place where a loan is secured on property or land.
Loan to value can, for the most part be fairly straight forward, but there are some underlying factors which you may find interesting that could affect the loan to value a lender is willing to offer:
Your employment ‘status’
Your ‘status’ in this context simply refers to your ability to prove income. If you are employed with wage slips this is fairly straightforward – If you’re on a contract or self employed, depending on the nature of your self employement or contract, it could have a bearing on the loan to value.
Affordability, or the way in which a lender decides if you could afford a mortgage or loan will differ from lender to lender. The lender may not be willing to offer the full loan amount applied for. This could mean the lender will restrict the loan to value up to what they deem is affordable – the upshot being you may need a bigger deposit or have to borrow less (for secured loans) – We have a page explaining how a lender may work out affordability.
The property type
The type of property you want to secure funds against could influence the loan to value allowed by a lender. For instance, a non standard construction property (such as concrete prefab or timber frame build) could have LTV limits.
Your credit status and rating could influence the loan to value of an application.
Loans and mortgage that allow for bad credit will typically allow combinations of bad credit types such as a number of missed payments, defaults & CCJ’s.
For example: Most mortgage and secured loan lenders will have minimum credit scores below which a certain product or loan would not be available. Each product or lender would usually vary on their minimum credit score.
For example: You could have 3 defaults and 1 CCJ, which will fit on a certain loan product, but if you had 1 default and 3 CCJ’s the loan product would probably be different.
Some lenders may work off the number of bad credit items rather than the amounts such as – up to 3 CCJ’s registered rather than the CCJ’s individual or total pound (£) amount.
The actual amounts in pounds (£) you owe – For example: You could have 1x default for £3,000, 1x CCJ for £1,000 and another CCJ for £300 – some lenders work off totals (such as – up to £4,000 total CCJ’s) & some work of both number and pound amount (i.e. max 3 CCJ’s not totaling more than £10,000)
For Example: The date bad credit items were registered on your credit file is an important factor to be considered. Some lenders view ‘bad credit’ registered some time ago differently than more recent ‘adverse credit’ and may not take certain credit issues into account depending on when it was registered.
Although defaults and CCJ’s will remain on a credit file for 6 years from the date they are registered, the achievable LTV could also differ if some of the adverse credit has been cleared, the date it was cleared could also have an impact on the LTV.
All lenders have their own criteria for deciding what LTV they will allow and what loan to value mortgage and loan products have. There are literally thousands of different mortgage and secured loan products available, so going through every scenario here would be pretty much impossible. Each case needs to be treated on its own merits – making sure you get the best available, may come down to who you use to source your loan or mortgage.