Why a higher loan to value can mean a lower loan amount
Loan to Value Ratios. Higher loan to value, higher loan? WRONG. It doesn't work like that. It isn't just about the percentage a lender will advance, it is about the valuation they are using.
Sometimes a lower loan to value ratio gives you a higher loan amount. Confused? I don't blame you.
With commercial mortgages and other property finance it is about the loan to value ratio AND the valuation the lender uses.
There are several types of valuation a lender can use. Know which one as it makes a huge difference to how much you can borrow.
@finance-solutions explain the detail so you save £00's and get your property finance quicker, easier and with less hassle.
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Timings:
00:48 - The different types of valuation figure lenders use
01:17 - The difference between valuation types, which is which, how they differ
03:19 - Why you check which valuation the lender uses to get the best finance offer
Narrative
Loan to value ratios, the amount as a percentage of a property value that will lender will lend to you. Some lenders lend 80% of property value. Others will lend 70% of a property value sounds simple.
So, why is it that a lender who will lend you 80% of a property value will sometimes give you a lower loan than a lender that will lend you 70% of a property value. If it's anything, any of us know about a finance sector, it is things that should be simple rarely are. Let me explain why it happens and why it catches clients out. It all comes down to what valuation of a property the lender will lend against
To you and me, the value of a property is what it's worth that's because most people will talk in terms of open market value. In other words, if I was going to sell or buy a property, what would I expect to pay for it? What to market selling similar properties out that is open market value. Lenders will sometimes lend on open market value. They may also lend on 180 day value or even a 90 day value. What that means is 180 day value, what can I expect to get for a property if I had to sell it and complete in 180 days and likewise, 90 days, what could I get for it if I had to sell and complete in 90 days, those two figures are always lower than the open market value.
As A guide, 180 day value is typically 10% lower and 90 day value, 15% to 20% lower. So it all comes down to what valuation the lender's using. If a lender's going to lend you 80% of a property value, but they have based their value on 180 days, that can often mean the lender that is going to lend you 70% of a property value, but their lending on an open market value will end up lending you more, strange isn't it? So what appears obvious isn't and it catches a lot of borrowers out because they go down the road of getting valuation done and thinking they know how much they're going to borrow only for a loan offer to come back lower than they thought after the valuation. It means they're scraping around looking for a higher deposit for a purchase, or they can't borrow as much as they thought and they've paid out probably on legals, on searches and a valuation
Yes, they're not happy campers at this stage. Now we'll always explain to the client what valuation the lender is going to work on. So it's always nice and clear, and we understand that, but a lot of clients don't. So if you are looking at borrowing against the property value, don't just look at the loan to value that the lender will advance, look at what valuation they're going to use to work out their loan to value. If you get those two pieces of information and put them together, you know where you stand, it should be simple, it never is with the financial world, but let's try and make it easier as it should be. Any questions, any queries with regard raising money against a property, get in touch will explain it to you will help you through it. In the meantime, loan to values, don't take them at face value, look at what valuation lender's going to use, and then work out where you are. Happy to help and get in touch.