What Will Be LTV (Loan to Value %) on a Mortgage in the UK When Buying a Real Estate?

Taking financial assistance has been a common practice for buying property in the UK. With soaring prices, the trend has increased a lot as well. Someone who wants to buy an apartment or villa in the UK would obviously need to check his financial situation in advance. There is a very small percentage of people who can manage such a large sum of money in one go. Most people opt for installments so that they can make mortgage payments in a flexible and convenient manner. It is good to build a knowledge base and know about important concepts when you are applying for loans. It becomes a problem for applicants if they apply without getting enough information. For instance, if you do not know about LTV, you would face problems while getting approval.

Considering the UK Property Market:

The UK has its regulations for mortgage grants. For instance, a duty is applied by the government on the taken financial assistance. The rates depend on the price of the real estate property and whether you are purchasing your first home or not. If you are buying a home for the first time in the UK. No stamp duty is applied on a property price that is less than or equal to £125000. This condition changes when you apply for the second mortgage sum. In that case, even if the mortgage sum is less than £125000, a mortgage percentage of 3% is applied.

The stamp duty factor is important and loan applications should check it before they apply for a mortgage in the UK. There are multiple slabs and each one of them its own stamp duty percentage. You should check the slab you fall in and then apply for a loan.

Paying the maximum percentage as advance:

When buying a property in UK, the LTV percentage depends on the advance payment which you have paid. Let us consider the formula of LTV again and use an example to build understanding. Consider that you are looking for residential property and find a house according to your needs. Now, in terms of financial needs, you need assistance so that a large sum does not have to be paid in one go. Opting for a loan is the most obvious option you can look at.

• You need to be careful when the application has to be submitted. Along with that, selecting the correct property in terms of price is critical as well. You need to be sure that a lot of financial burdens is not on the head because this makes it hard to make monthly payments.

• Why should you pay a large percentage in the form of advance? How does it prove to be advantageous for the loan taker? As mortgage payments have to be paid for a long span of time, problems are faced by loan applicants if the sum is too big. It is important to analyze things yourself to some extent before you make a submission. Adopting an overambitious attitude can always be a problem. 

• Compare multiple property options of a similar type to get the best financial deal. Even if you think that a particular property is very suitable, seek alternatives with similar features. This would obviously help you with better financial deals in terms of loans.

Keep the LTV below 80%:

It is an irritating disturbance when an applicant completes the requirement of the loan and his application gets rejected. So, it’s important to first calculate your loan to value ratio with the LTV calculator before applying for a loan. If you take all the steps in a proper manner, the application would not get rejected. Let me give you an example. 

• Do you know that loan applications get rejected if the mortgage percentage is more than 80%? Financial loan giving companies have the opinion that if someone needs more than 80% as assistance, his financial situation is not up to the mark. This raises a question mark about whether the particular person would be able to make his payments or not. Thus, it is important to pay a minimum of 20% as a down payment. This would keep the LTV percentage to 80% or below.

LTV formula and its parameters:

Even if you do not have a mathematical or financial background, it would not be hard for you to understand the LTV formula. It is given as follows.

LTV = Mortgage Payment /Property Price * 100

There are two main parameters in the above formula. The first one is the mortgage payment. This is the sum of money that a loan application has taken from the bank or loan giving firm. The second component is the property price. This is the total price of the property being purchased. 

• LTV in simple terms is the ratio of mortgage payment and property price. According to financial experts, this ratio should not be more than 80%. If the LTV is greater than 80%, it shows that the applicant is in a weak situation financially. In such cases, it becomes harder to get approval. You need to remember that loan giving companies are very particular about the financial stability of an applicant. If there are stability problems, it simply means that repayment would not be that easy for the applicant.

• The minimum benchmark, in this case, means 20% as the advance payment. People who are unable to pay this percentage are not counted as financially stable. Hence, the applications of such people are rejected in most cases.

Conclusion:

If you do not want to face any issues in terms of financial assistance, checking the key factors is very important. Calculating the LTV percentage is the first task you should perform. The LTV percentage should be less than 80% as it depicts the financial standing of an applicant. A minimum of 20% has to be paid in advance so that immense burden is not exerted while paying the monthly mortgage sums.

Talking to a loan officer helps at times. Ask him about the recommended property prices you should consider depending on the salary being earned.