The Loan to Value of your property, or LTV Ratio, is the ratio between the value of your property and your mortgage amount. During this current economic climate then you will find that a lot of lenders are imposing stricter regulations on their lending and this is particularly clear in the amount of money that they are lending to people through mortgages and remortgages. You'll need to bear in mind that a mortgage lender will typically value the property a bit lower than an estate agent will. This is because an estate agent will value your house at the highest amount that they think a buyer will pay, whereas a mortgage broker will value your house based on a price that will guarantee you a quick sell if you were repossessed and they needed to sell the property to cover your outstanding payments.
To work out the value of your property for the purpose of mortgaging the lender will do a property valuation in one of three ways depending on your situation. These are.
- Desk Top, where they will look at criteria on the internet
- Drive by, where they will view your
property from the outside only
- Full Valuation, where they will assess your house both inside and out.
From this evaluation they will have the ability to assess any risks that are associated with the loan and will be able to work out what is the maximum they want to lend you for the property's value. At the moment, a lot of lenders will give you 90% on the property value with the purchaser putting in the other 10%, or they'll put in 85% against a property being remortgaged.
When they're calculating the interest rate the lender will use the results of the valuation in order to assess the level of interest that needs to be charged. Generally, the higher the LTV the higher the risk there is for the lender, so they will apply a high interest rate accordingly. This works in reverse too with a low LTV there will consequently be a low interest rate too. Whether you're going direct to a lender or working through a broker the initial valuation will provide the main basis for your first decision and in some circumstances some underwriting will be involved too.