The loan-to-value (LTV) is the percentage in which the amount of the mortgage (loan sum) is compared to the market value of the collateral. The lower the LTV, the more certainty the provider of the financing has that the outstanding or requested loan sum can be repaid from the proceeds of the (execution) sale of the collateral.
What does loan-to-value (LTV) mean?
When financing a house or commercial real estate, the loan-to-value is an important topic. The Temporary mortgage loan scheme stipulates that financing an owner-occupied home from 1 January 2018 will not exceed 100% of the may be market value.
Mortgage lenders may deviate from this and
maintain a lower loan-to-value. This standard is usually followed for financing the owner-occupied home. There are a number of exceptions, which means that it can be borrowed. This is possible, for example, when co-financing energy-saving measures.
Voor verhuurd onroerend goed wordt door financiers vaak behoorlijk minder verstrekt op het onderpand. De meeste aanbieders van een buy-to-let mortgage hanteren een norm van 80% van de marktwaarde in verhuurde staat. In de praktijk is het ook vanuit het perspectief van de belegger aan te raden om niet meer te financieren. De marktwaarde in verhuurde staat is meestal lager dan de marktwaarde vrij van huur en gebruik. Een vaste richtlijn is hiervoor moeilijk te geven en kan sterk verschillen per type onderpand en locatie. In de praktijk verschilt het tussen de 60% en 100%.
Example
Jan Willem has seen a beautiful house on Funda. He wants to buy the house to rent out. The apartment is still empty, but it is expected that he will soon be able to find a suitable tenant. The purchase price of the apartment is € 225,000 kk The total investment including cost buyer amounts to € 232,000.
The valuation report shows a market value in rented condition of € 175,000. He can finance a maximum of 80% of this. This is an amount of € 140,000. As a result, Jan Willem has to contribute a total of € 92,000 in his own resources (or from others). That is 41% of the purchase price.
Because the market value in a rented state is generally lower than the market value free of rent and use and because of the >maximale mortgage 70% or 80%, real estate investors usually have to bring a considerable amount of equity with them to purchase a property for rent. The minimum own contribution is therefore between 20% and 30%. Some providers may provide more. This is offset by a higher interest rate and risk.
