Does the loan to value – LTV product limit a remortgage amount?
How to loan to value limits work?
You may have seen Lenders quoting loan to value / LTV limits for their remortgages on their websites and literature but what does it all mean? The jargon itself is easily explained it is the ratio of mortgage to property value.
Example 1:
Property value £100,000
The product LTV limit is 70% of the property value i.e. £70,000
If you plan to remortgage and borrow more money then the LTV limit will take into account the existing mortgage balance as well and NOT just relate to the new borrowing:
Example 2:
Property value £100,000
Existing mortgage £50,000
The productLTV limit is 70% of the property value i.e. £70,000
So the product will allow you to borrow a further £20,000 (20%).
The LTV limit is set by Lender’s individually on the own aspirations to lend. The higher the loan to value limit the greater the risk to the Lender. How so? Well if house prices drop below the mortgage value then in the event of repossession the Lender would be out of pocket.
More subtlety the Lender may state they lend up to 90% loan to value but this might only be on the basis you are swapping your existing mortgage balance and not borrowing any more. For capital raising they might limit the loan to value to say 75% LTV or £25,000.
The LTV limit is also the maximum buffer. Depending on your income and circumstances the Lender may decide to lend less.
Property type can also have a bearing on loan to value limits with restrictions typically on new build flats and ex local authority property.
The interest rates charged by the Lenders normally are more attractive the lower the loan to value.
In short it can be a minefield so if you are looking to raise money its best to seek professional mortgage advice to avoid disappointment. For more information call us on 020 7993 2044 or complete the online enquiry form on this page.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines. To get in contact with him please click here.
