Loan to Value (LTV) is one of the most important elements when taking out a mortgage. But what exactly is it? What consequences does this have for Your mortgage? And how high is the maximum Loan to Value on average?
Anyone who has ever taken out a mortgage knows the ins and outs that comes with such a company. Company , yes. Because taking out a mortgage is not self-evident and certainly as an entrepreneur you are tested in several ways: is this ZAP or SME with his varying income capable of buying a house or business premises?
Such an assessment involves all kinds of things, including your profit and loss accounts for the past three booking years, the income of any partner who moves in with you and whether or not there is a BKR registration. Ultimately, a maximum mortgage to be taken out will be developed with which you - hopefully - can finance your dream home or new business premises.
Loan to Value for owner-occupied homes
In addition to the above-mentioned elements that determine the maximum amount of your mortgage, the market value of the house to be bought also plays an important role. You can only borrow an amount equal to the market value of the house you have in mind.
That market value is different from the asking price. While it is uncommon, it could happen that an owner charges, for example, $ 400,000 for his home, when in reality the home is worth only $ 375,000. In such a case, you will receive a maximum mortgage of € 375,000. In that case, the market value is determined by a certified appraiser who pays attention to various elements, such as the neighborhood and the architectural condition of the house.
We call this ratio, that between the amount of the mortgage and the market value of the house, the Loan to Value - the LTV, for insiders. This is set so that you do not lent too much and therefore end up with sky-high monthly costs.
So suppose the asking price of the house is € 400,000 and an appraiser has determined that the market value is actually € 400,000? Then you can borrow € 400,000 with a Loan to Value of 100%, not entirely coincidentally also the LTV that currently applies to mortgages.
In the past this has sometimes been different - and actually better. In 2013, the Loan to Value was still 105% of the market value. Anyone who bought a house for sale for € 400,000 could therefore borrow € 420,000: handy for any renovations. Over the years, the Loan to Value has decreased by one percent each time, until it reached 100% today.
Loan to Value for commercial properties
Why did we think about the Loan to Value for owner-occupied homes for so long? Because the Loan to Value for commercial properties can best be explained in this way. It probably doesn't surprise you that this one looks very different for business objects.
There can be several reasons for the possible purchase of a commercial property. It might be bigger. It may, over time, make you money. Or maybe you just want to own your own office instead of renting it. Whatever your reason, financing a commercial property can be difficult. This is due to the fact that the Loan to Value is not 100% here, but 70%. On average, banks and other lenders therefore provide approximately 70% of the market value of the business premises. That, as you now know, is the actual value of the building.
So suppose - you have a commercial property of € 300,000 in mind. Then most banks will only provide you with a business mortgage of € 210,000. You have to put in the rest yourself.
Financing a business property
Fixing that yourself - that is precisely the problem for many companies. Anyone who has been active for some time may get it straight out of his back pocket, but most SMEs do not just have € 90,000 on the shelf. However, there are options for financing a business property . For example, some companies use crowdfunding to get the non-mortgage part.
So-called bridge financing is also - for lack of a better word - popular. These loans are used specifically for real estate investments.
And then there is the mortgage loan . This is also a loan that has been specially created for these types of situations. It can be repaid on a linear as well as annuity basis and can be closed for ten to twenty years. You also benefit from a lower interest rate with mortgage credit than with regular business loans.