Glossary
Loan-to-Value (LTV)
How much you can borrow against an asset's value
Loan-to-value sets how much can be borrowed against a property's price. At 70%, a house worth 500,000 supports borrowing up to 350,000.
The rule exists to allow for falling prices. Lending the full value means even a small decline leaves the collateral worth less than the debt, endangering both bank and borrower.
Governments also use the ratio to manage property markets — lowering it to restrict lending when markets overheat, raising it to loosen transactions when they stall.
It is often applied differently by region, by how many homes the borrower owns, and by price. Speculative areas and multiple-property owners typically face lower ratios.
Actual borrowing capacity comes from combining this ratio with income tests. Sufficient collateral does not help if repayment capacity is short, so both conditions need checking. A fall in property prices after the loan is drawn does not normally trigger a recalculation and a demand for repayment — though refinancing or extending the term is reassessed.