High LTV Property Purchases

When you are looking for funding to buy a business property - or buying residential property as an investment - you are unlikely to be offered a loan covering the full cost. Lenders base their lending on the value of the property itself and will use the property as security for the loan - which means they will take it and sell it if a buyer is unable to keep up the loan repayments.

But as well as the right to seize the property, they will usually also require a contribution from the buyer - a proportion of the purchase price, which is known as the deposit. 

This has two purposes:

• It helps ensure that as a borrower you are completely committed to the property purchase - and that you cannot afford to simply walk away from it if your plans change.
• It means that if the property has to be sold by the lender, they stand a better chance of recouping all the money they have lent. If the property fails to sell at the full price, the lender can afford to take a lower offer. Any surplus will still be returned to you as the borrower but, if the sale price is lower than the one you pay, you will take the loss from the deposit.

How much deposit is required?

The size of the deposit required will vary with the lender and the type of property being purchased.

First-time homebuyers may be able to arrange a domestic mortgage with a relatively small deposit and may be able to secure funding with an 85% or 90% loan. Historically, it has been possible to arrange 100% finance as a first time home buyer. This is because the sums involved with a first purchase is relatively small, and the domestic market may offer steady growth, reducing the risk for the lender. 

Buying commercial property is very different. The risk of a business failure is higher than the likelihood of a buyer being prepared to abandon their home. To reduce this risk, lenders will insist on a larger deposit. 

However, the level of deposit required will depend on the lender and the type of property being acquired. Investment property, such as buy to let homes bought with a commercial mortgage may need a larger deposit, typically 25%-35%, while business premises that the borrower will use for their business may require a smaller figure. 

The deposit will always be individually agreed when the mortgage deal is negotiated. Factors like an imperfect credit record, for you or your business, could result in a higher level of deposit being required.

What is LTV?

The LTV - or loan-to-value - ratio is a financial term used by lenders to express the ratio of a loan to the value of the property it is secured on. LTV is all about how much your mortgage borrowing is in relation to how much your property is worth. It's a percentage that reflects the proportion of your property that is mortgaged, and the amount that is yours - otherwise known as your equity.

For example, if you have a mortgage of £150,000 on a commercial property that's worth £200,000 on the market, you have a loan-to-value of 75% – therefore you have £50,000 in equity. This means that 75% of the property's value is paid for by your mortgage and 25% is paid for out of your own money as your deposit.

Can you have a high LTV?

The LTV expected will vary between lenders along with the type of property being purchased. 

In some cases, the lender will not lend above a certain ratio, which could be as low as 60% of the property value.

This means that a large deposit will be required - but there is compensation. A low LTV may mean a high deposit, but it can mean a lower interest rate. So a high LTV may mean a lower deposit for you to find, but work out more expensive in the long run.

But if money is short, you may have no alternative but to find a lender offering a high LTV.

Commercial mortgages are usually offered with a maximum LTV of 70-80% for an owner-occupied mortgage or 75% for commercial investment, which means you would normally need a deposit of between 20% and 30%, depending on the level of risk your lender will assess.

However, there are circumstances where commercial lenders are happy to offer up to 100% LTV commercial mortgage financing. This usually involves the borrower putting up extra security and the lender claiming a first charge on it.

Most lenders will only offer a commercial mortgage with a high LTV - which should be considered as one of over 80% - on the condition that the borrower puts up extra security to safeguard the loan.

This would usually be at least one property or a valuable asset that you or your business owns and holds sufficient equity in. So to secure 100% funding on business premises, a borrower may have to put up their home as additional security. If you default on your commercial mortgage payments, there is the possibility that the security could be repossessed to settle the debt.

A 100% business mortgage is basically a secured loan for the total value of the property you’re buying, so no deposit is required. If you have some available funds, a 90% deposit might be possible and might help you secure a lower interest rate, but you would need at least a 10% deposit as additional security to convince the lender to go above their usual commercial mortgage LTV ratios.

Lending criteria for a high LTV

The actual lending criteria for a high LTV commercial loan will vary between lenders, but will include:

• Your profitability: Commercial lenders calculate whether a mortgage is affordable based on a business's earnings before interest, tax, depreciation and amortisation (EBITDA). The better the figures, the better the chances of securing the necessary loan.
• Your credit rating: Most commercial lenders prefer businesses and individuals with good credit histories, and the better the credit rating, the better the chance of a high LTV loan. 
• The security you offer: if you can put up good security for your loan, such as other property which you already own, the chances of getting a high LTV loan are greatly improved.
• Your Trading history: A strong track record in the industry you’re working in will usually boost your chances of securing a commercial mortgage. However, it may be possible to find a specialist provider that caters for first-time investors and start-ups - although costs will be higher.

How Rangewell can help

High LTV lending is a challenge and not all commercial property lenders will consider it.

At Rangewell we know those that will - as well as those that specialise in particular sectors. Each lender has its own approach to interest rates and fee arrangements, and comparing them all may require expert knowledge to fully understand what is really being offered.

At Rangewell, we work with lenders across the market and we can call on the expert knowledge you need to find the most appropriate lender for you. It means that you have the financial solutions you need when you are considering a property purchase. 

When it is a high LTV, we can work to find the fairest rate on the market.

Our knowledge can not only help you secure the funding you need - it can also save you a great deal of cash.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE