Also known as: Loan to value, Loan-to-value ratio
LTV
The ratio of the loan to the value of the property pledged, in percent. It determines how much of your own money you need and what rate you will get.
LTV says what share of a property's value the loan covers. Borrow €160,000 against a €200,000 flat and your LTV is 80%: the remaining 20% you pay yourself.
It is one of the few numbers that affects both whether you get the loan and at what price.
The formula
- : the loan amount
- : the value of the property as set by a valuation or the bank's own assessment
Mind the denominator: what counts is the value according to the bank, not the purchase price. If the valuer prices the flat below what you are paying for it, the LTV comes out higher and you make up the difference.
A worked example
You are buying a flat for €220,000. The valuer prices it at €210,000.
You have €40,000 saved, so you ask for a loan of €180,000.
The LTV is calculated on the valuation, not the price:
Had you worked from the purchase price you would have got 81.8% and might have wrongly assumed you fell into a cheaper band.
Why LTV matters
The price of the loan. Banks tier their rates by LTV. Moving from 90% below 80% tends to be one of the most effective ways to cut your interest: often more so than negotiating.
Whether you get the loan at all. In Slovakia the upper LTV limit is set by the National Bank of Slovakia, so a bank could not lend you the full value of a property even if it wanted to. Money of your own is a condition, not an advantage.
Risk for you. A high LTV means a small stake of your own. If property prices fall, you can end up with a debt larger than the flat is worth: selling it would then not clear the loan.
How to lower your LTV
A larger deposit is the obvious route, but not the only one. LTV also falls simply through repayment: the principal shrinks while the property's value usually does not. After a few years it is worth asking for a reassessment: a lower LTV can mean a lower rate at the next fixed period.
The other option is to pledge a second property, which raises the denominator. It also raises what you stand to lose.
How the ratio of loan to value changes during repayment is shown by the amortisation table in the mortgage calculator.