LTV, also known as ‘Loan to Value,’ is a commonly used term in the lending and property industry.
For both lenders and borrowers, if you want to stay on top of your game in the property field, it is important that you are familiar with the expression and how the LTV ratio is calculated.
The Loan-to-Value ratio (LTV) has been defined by Investopedia as:
“A lending risk assessment ratio that financial institutions and other lenders examine before approving a mortgage.”
For any help with independent development finance loans, get in touch with us below.
LTV is the amount of the loan divided by the value of the property.
To calculate the LTV ratio, you divide the loan amount you are receiving by the purchase amount of the land.
For example, if you want to purchase a plot of land for £100,000 and you are receiving a loan for £50,000, you take the £50,000 and divide it by £100,000.
This gives a 50% loan to value.
If you take a £90,000 loan to cover a £100,000 project, you divide £90,000 into £100,000 and get 90%.
A higher LTV means that the lender takes on more risk, as they will be covering more of the funds needed to secure the property.
A lot of lenders cap a limit on the LTV that they will accept before they offer a loan.
The lower the loan to value, the lower the cost of the loan because of the lower the LTV the lower the perceived risk of the loan by the lender. E.G. the 90% LTV is a higher risk for the lender.
Whether you are looking for a mortgage, a bridging loan, a business property loan or building and construction finance, fully understanding the LTV ratio is essential to staying on top of your project’s costs and gains.
For a buyer, a lower LTV means you have less to pay back and usually lower interest rates.
What else do I need to consider when getting into property development?
You will not be discriminated against based on your previous experience, we work with; first-time developers, builders and construction companies and large commercial housing businesses.
As long as you have faith in the project, and we see the same potential you do, we are happy to help our clients work to achieve the highest possible returns on their developments.
We adopt a no-nonsense, streamlined, approach to lending and construction.
We have personal experience in property development ourselves so we understand the importance of initiating a project at the right time, and we commit to fast results for our clients.
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If we can help you get the best rate on a loan we will say so, if we can’t we will be able to point you in the right direction or suggest alternative financial vehicles.
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