LTV, or loan-to-value, is the size of your loan as a percentage of the property’s value, and it is the single biggest factor in how much you can borrow and what you’ll pay. Understanding it before you apply helps you work out the deposit you need and whether a bridging loan is realistic for your plans.
This guide explains how LTV is calculated, what the maximum LTV is, and how to improve yours. For the basics of the product, see our page on bridging loans.
Key Points
- LTV on a bridging loan is the loan divided by the property’s value, and most lenders allow up to around 75% on a first charge.
- The lower your LTV, the lower your rate is likely to be, because the lender has more of a safety margin if the property has to be sold.
- Fees and interest added to the loan count towards LTV, so the amount you actually receive can be noticeably lower than the headline figure.
What Does LTV Mean on a Bridging Loan?
LTV means loan-to-value, which is the amount you borrow as a percentage of the value of the property used as security. Bridging finance is secured on property, so lenders use LTV to measure how much risk they are taking. A lower LTV means more of the property’s value is your own money, which gives the lender more protection.
How Is LTV Calculated For a Bridging Loan?
The LTV for a bridging loan is calculated by dividing the loan by the property’s value and multiplying by 100. For example, a £300,000 loan on a property valued at £400,000 is an LTV of 75%. The value used is normally the lender’s own valuation, not the price you paid or the figure you expect, so the two can differ.
What Is the Maximum LTV for a Bridging Loan?
The maximum LTV for a bridging loan is typically around 75% on a first charge, though it varies by lender and property type. Some lenders go to 80% or more where you provide extra security, such as a charge over another property. Residential property usually gets the best LTVs, while commercial property, land and unusual buildings are often capped lower.
What Is the Difference Between Gross and Net LTV?
Gross LTV includes the interest and fees added to the loan, while net LTV is only the cash you actually receive. Lenders usually set their limits on the gross figure. If you take a £300,000 gross loan on a £400,000 property and the arrangement fee (2%, or £6,000) and 12 months of retained interest at 0.85% a month (£30,600) are added in, your net advance is £263,400. That is a net LTV of about 66%, even though the gross LTV is 75%.
How Does LTV Affect My Bridging Loan Rate?
LTV impacts your bridging loan rate as it means a lower monthly interest rate, because the lender is less exposed if the property has to be sold. Rates typically run from around 0.55% to 1.5% a month, with loans at 50% to 60% LTV towards the lower end and loans at 70% to 75% towards the upper end. Other factors matter too, including whether the loan is open or closed, the type of property and the strength of your exit. Our guide on what a bridging loan is and how it works covers how rates and exits fit together.
How Is the Property Valued for a Bridging Loan?
The property is valued by an independent surveyor chosen or approved by the lender, and you normally pay for the valuation. Lenders usually look at the open market value, and sometimes a lower restricted-sale value, such as what the property would fetch in 90 or 180 days. Because they lend against the lower figure, a quick-sale valuation can reduce the amount available. You can check ownership and title details yourself through the Land Registry service on GOV.UK.
What LTV Can I Get on a Second Charge Bridging Loan?
On a second charge bridging loan, the maximum LTV is usually lower, often around 70% combined with the existing mortgage. The lender counts both the first mortgage and the new loan against the property’s value, and it sits second in line to be repaid. That higher risk is why second charge loans are generally priced higher too.
What Happens If My Property Is Valued Lower Than Expected?
If your property is valued lower than expected, the lender will offer less, because the loan limit is based on their valuation rather than your estimate. For instance, if you expect a £400,000 property to be worth that and it is valued at £360,000, a 75% LTV limit drops from £300,000 to £270,000. That leaves a £30,000 gap you would need to cover with your own funds or extra security. It is one reason to get a decision in principle early and keep some flexibility in your budget.
How Can I Lower My LTV For a Bridging Loan or Borrow More?
You can lower your LTV or borrow more in a few ways, depending on what you need:
- Put in a larger deposit: the more of your own money you add, the lower your LTV
- Borrow less against the property: a smaller loan gives a lower LTV and usually a lower rate
- Offer additional security: some lenders will lend at higher LTVs if you give a charge over another property
- Pay interest monthly: this stops interest being added to the loan, which reduces your gross LTV
- Get a decision in principle early: it shows what the lender will offer before you commit
Whichever route you choose, remember that your property may be repossessed if you do not keep up repayments on a loan secured against it.
How Does LTV Work in Practice For a Bridging Loan?
Maya wants to buy a flat at auction for £320,000. She has £90,000 in savings and needs to complete in 28 days. A lender values the flat at £320,000 and offers a bridging loan of £240,000, which is an LTV of 75%. Because her deposit is £80,000, she keeps £10,000 for costs. If she had wanted to borrow £256,000 (80%), the lender would have needed extra security. The lower her LTV, the cheaper her monthly rate would be.