Loan-to-value ratio

The loan-to-value (LTV) ratio is one of the main risk assessment measures used by lenders to assess a person's suitability for a mortgage.

The loan-to-value (LTV) ratio is one of the main risk assessment measures used by lenders to assess a person's suitability for a mortgage. It expresses the loan amount as a percentage of either the purchase price of property or its appraised value.

For example, if you put down a deposit of 30% on a property, the LTV would be 70%. Or, if you're buying a property for £300,000 and the mortgage amount is £240,000, the LTV is 80% (the £240,000 loan divided by the £300,000 purchase price).

The higher the LTV ratio, the less likely a mortgage will be approved as it will be deemed high risk. This is because if borrowers have small equity, they have less to lose and are more likely to default on the mortgage.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up