Loan to value
Loan To Value is the ratio of the amount of a mortgage loan to the value of the residential property, or other asset, on which it is secured.
- Example 1
- A property is valued at £400,000.
- The outstanding amount of a loan secured on it is £300,000.
- The loan to value ratio is 300,000 / 400,000
- = 75%
The lower the LTV, the lower the risk for the lender.
- Example 2
- Another property is also valued at £400,000.
- The outstanding amount of a loan secured on it is £200,000.
- The loan to value ratio is 200,000 / 400,000
- = 50%
All other things being equal, the loan in Example 2 carries lower risk for the lender.