Glossary / Property

Loan to value

Loan to value, or LTV, is the mortgage amount expressed as a percentage of the property's value, and it is the single number that determines how far a price fall has to go before the owner's equity is gone.

At seventy five percent LTV the owner has twenty five percent equity, so a twenty five percent price fall wipes it out entirely, before selling costs.

Lenders price on it, and the rate steps at the standard thresholds rather than sliding smoothly.

Where people get it wrong

Reading it as a borrowing limit rather than a risk measure. It is both, and the second reading is the one that matters in a falling market.

The framework behind it Cash on cash return sets out the rule, the arithmetic and where it breaks.

Read the framework

Related terms

Cash on cash return Cash on cash return is the annual cash left after every running cost and every mortgage payment, divided by the cash the buyer actually put in, which makes it the only property return figure that answers what your own money earned. Debt service coverage ratio Debt service coverage ratio is net operating income divided by annual mortgage payments, and a ratio below one means the property does not earn enough to pay its own debt. Drawdown A drawdown is the fall from a portfolio's peak value to its trough, expressed as a percentage, and recovering from one requires a larger percentage gain than the loss because the gain is calculated on a smaller base.

Investments Playbook publishes educational research and general information. Nothing on this site is personal investment advice, a solicitation, or a recommendation to buy or sell any asset. Property and securities can fall in value. Past performance does not predict future returns. Figures shown are indicative and may be delayed. Always take regulated professional advice before acting.