The Mortgage Finance Blog

When speaking to a mortgage broker you will almost certainly hear the term loan-to-value.

Simply put, the loan-to-value or LTV is the ratio of the mortgage balance against the property value. For example a property valued at £100,000 with an outstanding mortgage balance of £50,000 is 50% loan-to-value.

As far as residential mortgages are concerned, the value of the property is based upon a surveyor’s report, produced on behalf of the mortgage lender. In determining the value of your property a surveyor will research the price for which other similar properties have sold in your locality (comparables).
Please note that a surveyors valuation is likely to be different from an estate agent’s "valuation".

In a normal arms length transaction, the lender will use the lower of the valuation or the purchase price to determine the value and hence the LTV.
If on the other hand, it is being sold to you cheaply by a relative, or if it is a council right to buy, the lender will generally be happy to work on the basis of the market value. Should you be in this position, please contact us and speak to an advisor who will be able to advise you appropriately.

From a mortgage lender’s perspective, a loan with a lower LTV is lower risk and the interest rate you pay is based upon the bank’s perceived level of risk. At the time of writing, the best mortgage rates are available for loans below 75% loan-to-value. Rates increase significantly for loans between 75%-85% LTV and increase yet again above 85% loan-to-value.