Loan-to-value explained: how lenders calculate your maximum loan

Loan-to-value, almost always shortened to LTV, is one of the most important figures in any bridging loan application, yet it's also one of the most misunderstood. It drives your maximum loan amount, influences your rate, and is calculated slightly differently to how most people initially assume. Here's how it actually works.

What LTV actually measures

LTV is simply the loan amount expressed as a percentage of the property's value. A £150,000 loan against a property valued at £200,000 is a 75% LTV, our current maximum. The lower the LTV, the more security margin a lender has if things don't go to plan, which is why lower LTV loans are generally offered at more favourable rates than loans right at the maximum threshold.

Value, not purchase price

This is the detail that catches out a lot of first-time borrowers: LTV is calculated against the property's open market value, as determined by an independent valuation, not necessarily the price you're paying for it. If you're buying a property at a genuine discount, say at auction, for less than its true market value, the LTV may actually work in your favour, since the loan is calculated against the higher valuation figure rather than the lower purchase price.

The reverse is also true. If you're paying above what a valuer considers the property to be worth, perhaps in a competitive bidding situation, your effective LTV against the valuation will be higher than it looks against the purchase price alone, which can reduce the amount you're able to borrow.

How the valuation is carried out

A qualified valuer, usually from a panel the lender works with regularly, assesses the property and provides a valuation report. For straightforward residential cases, this is often a desktop valuation, which can typically be turned around within 48 hours. More complex properties, or larger loan amounts, may require a full physical inspection, which takes a little longer but gives a more detailed assessment, particularly useful where condition or structural issues are relevant to the property's value.

How LTV changes across our different products

Our maximum LTV of 75% applies to standard bridging loans secured against residential property. For refurbishment bridging, particularly heavier projects, the LTV is often calculated against the gross development value, meaning the expected value once works are complete, rather than the current value, which can allow for a larger loan relative to the property's current condition. Development exit finance, used to refinance a completed scheme, is generally assessed more conservatively given the different risk profile involved.

Second charges and existing borrowing

If a property already has a mortgage or other loan secured against it, this is normally accounted for within the LTV calculation, either by redeeming the existing charge as part of the new loan, or by the new bridge sitting behind it as a second charge. Second-charge bridging is more complex to arrange and typically comes with a lower maximum LTV than a first-charge loan on an unencumbered property.

Why LTV affects your rate as well as your loan size

Beyond simply setting your maximum loan amount, LTV also tends to influence the rate you're offered. A loan at 50% LTV represents less risk to a lender than one at 75%, since there's a larger buffer of equity if the property needs to be sold to recover the loan. This is why two borrowers with identical loan amounts, but different property values, can be offered different rates: the one with the lower LTV is often able to access a more favourable rate.

What happens if the valuation comes in lower than expected

Occasionally a valuer\'s figure comes in below what you or the seller expected, which reduces your maximum loan at the same LTV percentage. If this happens, options usually include increasing your own deposit to make up the shortfall, renegotiating the purchase price where possible, or in some cases challenging the valuation with additional comparable evidence. It\'s rarely the end of a deal, but it is worth understanding as a genuine possibility rather than assuming the asking price and the valuation will always match exactly.

Working out your own maximum

To estimate your own maximum loan, take your property's realistic current market value, not its purchase price if these differ, and multiply by 0.75. If your property is worth £400,000, your maximum bridging loan at our 75% LTV ceiling would be £300,000, though the actual amount offered will also depend on your exit strategy, the property type, and any existing charges against it.

Our own calculator lets you enter a property value directly and automatically caps the loan amount slider at 75% of that figure, so you can see your realistic maximum before you apply. If you'd like a more precise view based on your specific property, get in touch and we can talk through an indicative valuation and what it means for your available loan.