The importance of your portfolio LTV

Aviram Shahar - Lendlord
9th June 2020
Aviram Shahar 588

The property market is always an interesting one to follow, especially in any time of flux.

It’s grand ‘reopening’ has generated much interest, and enquiries, from those who were looking to buy/sell pre-lockdown, and also from those who have made property-related decisions over this period.

According to the latest market report from Twenty7Tec, Thursday 28 May was the busiest day for purchase mortgage searches since the start of lockdown. As well as this, the previous week – including bank holiday Monday - contained four of the five busiest days since lockdown began.

The balance between homeownership and renting continues to largely rest on a heady mix of the three A’s - appetite, affordability and accessibility. But how might Covid-19 change this and what can landlords be doing to better protect their existing and future portfolio needs?

In truth, we don’t yet know the full consequences from an economic perspective. Due to the unique nature of the crisis, changes have taken place on a regular basis and with such speed that it makes it almost impossible to predict the severity of recent events, or be able to accurately predict the immediate and longer-term impact on the property market.

Having said this, I expect to see an uplift in the rental market as many people whose employment status remains in some doubt are unlikely to commit to homeownership, at least not yet. And with house prices suggested to fall to some degree, this will generate opportunities for buy-to-let investors who are in a strong financial position to take advantage of these. And the strength of this financial position can certainly be helped by landlords who have a better grasp of their loan-to-values (LTV’s) for individual properties and across their entire portfolios.

What is an LTV and why does it matter to landlords?

LTV is all about how much your mortgage borrowing is in relation to how much your property is worth. It's a percentage figure that reflects the proportion of your property that is mortgaged, and the equity that you hold within them.

For example, if you have a mortgage of £150,000 on a house that's worth £200,000, you have a loan-to-value of 75% – therefore you have £50,000 as equity. Loan-to-value becomes a key consideration when buying or selling a property, remortgaging or releasing equity. This is a very rudimentary explanation but it’s a vital component which sometimes gets overlooked by some landlords.

LTV levels matter because this is what lenders base their lending decisions around. Specialist lenders will take a look at a landlords LTV level across their whole portfolio and base any decision around this information as this indicates present and future risk, plus outstanding liabilities.

Generally speaking, the lower the LTV across the portfolio, the more comfortable lenders will be about future lending, and this will usually be reflected on the kind of rates on offer. Lower LTVs will also help open the doors to capital raising opportunities which could be vital in uncertain times where opportunities will continue to present themselves.

We know that robust property management will reap rewards over the short, medium and longer terms, especially in a time where a tax and regulatory squeeze has been evident. Meaning that a stronger grasp of LTV’s and how much equity landlords have in individual properties and across their portfolios will prove an important base for better managing these properties.

Not to mention providing a perfect springboard for realising their borrowing and capital raising position to take advantage of a potentially hesitant property market which could well be laden with opportunities for savvy investors.

So how can you track your LTV across the entire portfolio over time?

Technology platforms such as Lendlord can help you estimate the current value of the property, track your mortgage balance on an ongoing basis and make sure your LTV is in a good place on both a property and portfolio level.

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