Introduction

Bad credit can present an obstacle to obtaining a mortgage. A loan-to-value (LTV) rate is one of the factors lenders consider when assessing a borrower with bad credit. The LTV rate is the ratio of a loan to the value of an asset purchased, usually a property. A higher LTV rate indicates that more money is being borrowed than the asset’s value. This article will explain the loan-to-value rate and how it affects bad credit mortgages in the UK.

What is Loan-to-Value (LTV) Rate?

The loan-to-value (LTV) rate is the ratio of a loan amount to the value of an asset purchased. It is typically expressed as a percentage, and lenders use it to evaluate the risk of a borrower. For example, if you seek a £200,000 mortgage on a property worth £250,000, the loan-to-value rate would be 80%. This means that a loan is financing 80% of the purchase price.

How LTV Rate Affects Bad Credit Mortgages

One of the most important factors lenders, such as Mortgagekey, consider when assessing a bad credit mortgage application is the loan-to-value rate. The higher the LTV rate, the riskier the mortgage. That’s because if a borrower defaults on the loan, the lender would likely be unable to recoup all of its losses. As a result, lenders are more likely to reject applications with a high LTV rate.

In the UK, lenders typically require an LTV rate of no more than 85% for bad credit mortgages. This means the borrower must deposit 15% of the purchase price. But it is possible to obtain an LTV rate of up to 100%, depending on the lender and other factors.

Conclusion

Bad credit mortgages in the UK often require a loan-to-value rate of 85% or less, meaning borrowers must put down a minimum deposit of 15%. In some cases, obtaining an LTV rate of up to 100% is possible. Understanding the loan-to-value rate can help borrowers make informed decisions when applying for a bad credit mortgage.