What Is A LTV?
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What Is A LTV?
LTV stands for loan to value, and to break this down, it’s the value of the loan compared to the value of the property you’re looking at purchasing. To simplify this, if you bought a property at £200,000 and had a £20,000 deposit, you would need to borrow £180,000 to buy the property. This would mean that you’ve got a 10% deposit with a 90% loan, meaning you would have a 90% loan to value.
As a general rule of thumb, the lower the loan to value, the cheaper the interest rates you will qualify for. The main reason for this, everything the lender does is based around them needing to repossess your property. So, for example, if you’ve only got a 5% deposit and the property market dips 10%, and the lenders have to repossess you, there is a chance they might lose money on that. And because of that, they charge higher interest rates compared to someone with a bigger deposit.
Suppose you were to buy a property and had a 25% deposit, even if the property price dipped 20% and the lender had to repossess your house. In that case, they can still get their money back, which is why you qualify for cheaper rates at lower loan-to-value products as there is a lower risk of the lender losing money.