Loan to value and different interest rates

Lesson 6 Loan to value and different interest rates

Module 2 | Learning aim: Understand what a mortgage percentage does and does not tell you.

Loan to value, or LTV, compares the mortgage with the property’s value. A £225,000 mortgage on a £250,000 home is 90% LTV. The remaining £25,000 is the buyer’s deposit in this simple example. A lower mortgage LTV can affect the products available, but it does not tell you the whole household budget. [S8]

A fixed rate stays the same for an agreed period. A tracker follows a stated benchmark under its terms. Other variable rates can change according to the lender’s terms. A fixed rate can make budgeting easier during the deal, but you still need a plan for when it ends. [S10]

Compare fees and restrictions alongside the rate. Ask about early repayment charges, overpayment limits and what happens if you need to move. Do not assume you can transfer a mortgage to another property without checks.

If there is an equity loan as well as a mortgage, list it separately. A mortgage that looks relatively small can sit beside another substantial obligation. The mortgage LTV is not a complete picture of everything that will need to be repaid. Worksheet R3 keeps each funding source visible.

Powwow Tip

Look at every borrowing obligation, even when the mortgage percentage looks reassuring.

Your next step

Calculate the mortgage LTV for a £190,000 mortgage on a £200,000 home.

Knowledge check: What is the LTV in the action example?

Source references: S8,S10. Original teaching examples and Powwow Tips are Property Powwow guidance. See the source register for current guidance links.