LTV (Loan to Value)

Loan-to-Value (LTV) is the ratio of the mortgage balance to the value of the property, expressed as a percentage. A property worth £200,000 with a £150,000 mortgage has an LTV of 75%.

LTV is the primary measure of lending risk from a lender's perspective. Higher LTV means more of the property's value is owed to the lender and less equity sits as a buffer. If the property is sold at a loss, a lower LTV means the lender is more likely to recover the full debt.

BTL mortgage LTV tiers and their practical implications: - 60% LTV: Best available rates, requires 40% deposit. Significant cashflow benefit from lower interest cost. - 65% LTV: Slightly higher rates than 60% - 70% LTV: Mid-range rates - 75% LTV: Standard market rate - the most common tier - 80% LTV+: Specialist lenders only, significantly higher rates

LTV also affects the ICR test. At higher LTV, the mortgage balance is larger, meaning the monthly interest payment is higher, meaning the rent needs to be proportionally higher to pass the ICR test. This constrains the LTV available in lower-yield areas.

For BRRR strategy, the post-refurb LTV determines how much equity can be released at refinance. A 75% LTV on a £160,000 post-refurb valuation = £120,000 mortgage. If total project costs were £115,000, the deal has fully recycled capital.