LTV (Loan-to-value)
LTV is the most important sizing metric in UK property and asset-backed finance. A 65 per cent LTV £500,000 commercial mortgage means a £325,000 loan against a property valued at £500,000, with the remaining £175,000 funded by the borrower's deposit or existing equity. Lower LTVs are cheaper because the lender's loss-given-default is lower if it has to repossess and sell.
Different products have different LTV ceilings. UK commercial owner-occupier mortgages typically reach 70 to 75 per cent for prime cases. Buy-to-let and investment mortgages tend to cap at 65 to 75 per cent depending on rental cover. Bridging finance usually sits at 65 to 75 per cent of open-market value, sometimes 80 per cent on residential development exit deals. Higher LTV almost always means materially higher pricing.
LTV is calculated using the lender's own valuation, which can be lower than the purchase price or the borrower's expectation. A surveyor may down-value the property, which forces the borrower to find a larger deposit or accept a smaller loan. On refinance, the LTV is recalculated against the current valuation, which means equity built up over time can be released as cash subject to the lender's policy.
Worked example
How the numbers play out
A buyer purchases a £1m commercial unit. The lender values it at £950,000 and offers 70 per cent LTV. Loan size: £665,000 (70 per cent of £950,000). The buyer needs £335,000 in deposit plus fees and stamp duty land tax — a meaningfully higher equity requirement than a 70 per cent advance on the £1m purchase price would have implied.
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