Understanding Loan To Value (LTV) When Remortgaging

Before you decide on going for a remortgage you need to make sure that you need certain things about remortgage so that you are not confused about how to handle it later on. LTV also known as Loan To Value in simple words is the ratio of borrowing against the value of your property. For instance, if the current value of your property is £100,000 and if you received a remortgage of £75,000 then your LTV ratio is 75%. In the earlier times things were smooth and clear but in the present economic situation where markets are instable bankers and financial institutions are very careful about the LTV ratio that they provide to the borrowers.

When you go for remortgage the lender will always value your property at a lower rate because the lender has to pay you remortgage based on the value of your property. This is exactly opposite to real estate agent because real estate agent is trying to sell off your property to another buyer for a higher price where he has to accommodate his fees as well. Hence, the higher the selling amount the higher the profit he makes. However, the lender will do the other way around because the lender will have to sell your property quickly if you are not able to pay then and if they have to recover the entire outstanding loan.

There are many ways in which the lender will value the actual price of your property. However, there are three common ways in which lenders usually perform property valuation.

–       Desk Top – valued by looking a specific way on the internet

–       Drive By – by valuating your property from outside

–       Full Valuation – by valuating your property thoroughly internally and externally

The lender will look out for all the risk involved in giving you remortgage and then come to a full and final conclusion of how much they can lend you for your property. If the borrower agrees both the party can go ahead with the next procedure or the borrower can look out for better lenders.

In the current scenario most lenders are happy to lend 90% of the actual property value where the purchaser has to put 10% minimum as deposit or 85% against the property being remortgaged. When it comes to interest rates the lender will make sure that there are no risk factors involved and therefore the lender will never raise the LTV because that will increase the risks involved. Hence, higher interest rate will be applied to the loan amount taken.

If you are approaching a lender on your own or through a broker you will need to understand the entire subject of property valuation for better communication.

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