What’s the relevance of LTV?

by Mark Alexander

12:13 PM, 15th December 2011
About 8 years ago

What’s the relevance of LTV?

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What’s the relevance of LTV?

Landlord’s Log, the Personal Blog Of Mark Alexander, the Founder of Property118


As the credit crunch continues to affect property prices, the remaining equity in my property portfolio, which I’d not refinanced out, continues to shrink away. The more values fall the closer I get to being in a position of negative equity. Am I at risk though?

I’ve been here before!

I purchased my first property in 1989 for £73,000. By 1992 similar properties were selling for £42,000 and I had a £55,000 mortgage secured against it. The bottom line though was that the rent didn’t reduce and even though mortgage rates hit 15% for a while, I got through it. I still own the property and it’s worth nearly three times what I paid for it.

So the right question to ask then possibly has nothing to do with LTV, surely it must be what is my break even figure? At what level of interest rates do things start to get tight in terms of covering my mortgage payments and all the other costs associated with letting my properties and what reserves do I have behind me to deal with issues as they arise? I have a strategy for that too.

If property values were to fall by 50% would I care? Well certainly not in the short term. I’m only 43 and I have absolutely no intention of selling up for many, many years, if ever. What I’m interested in is whether my property portfolio produces cashflow. I use this calculator to work out the breakeven figures on my portfolio. Why not give it a try and let me know what you think about it by leaving a comment below?

Now let me leave you with a contentious conundrum. Just suppose you could do property deals which stacked up at 200% LTV. When I say stacked up I mean affordability of all costs with sensible stress tests built in. Now assume you could find a mortgage lender daft enough to offer decent terms on a high LTV buy to let mortgage deal at 200% LTV , would you take it?

Please post your answers and rationale in the comments section below.



Comments

Jerry Jones

10:16 AM, 20th December 2011
About 8 years ago

I'd certainly use your mythical 200% LTV as one of the tools in the box, as a means of releasing the funds for the deposits needed for getting the number of units up to the level that I want. I suppose what really matters is the mixed portfolio's overall financial health and indeed I deliberately used some high cashflow props to subsidise one originally bought for potential growth in 2007. Oops! That said, it too now cashflows very nicely on a Paragon SVR!


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