# Property value, sold value and LTV (Scotland, United Kingdom)

I am about to buy my first property. I spoke to a financial advisor today and I didn't get what he was saying. He mentioned something like one the main errors of first time buyers is that they think that the LTV is calculated taking into account the percentage of the total purchase, whereas in reality it's the percentage of the value of the property.

As an example:

• A person requires £135k to offer £160K for a property. So the deposit is £25k.
• The property value is £150k
• The LTV is calculated considering £150k instead of £160k.

I am certainly sure I got something really wrong, but hopefully someone can shed some light on this non-sense!

• It certainly sounds like he was talking about how property value can change over time (and therefore your LTV might go up if the property falls, like you say – or, if you're fortunate, down if the market rises). However, is it possible he was talking about how the total purchase may cost you more than the price paid, after accounting for stamp duty, conveyancing, surveys etc? This is a common budgeting mistake of first-time buyers after all – not realising how much cash they'll need up front besides the deposit, to pay for all the above? Jul 17 '19 at 8:24

Loan-to-Value LTV is calculated as the difference between the amount of money borrowed (mortgage loan) versus the appraised value as provided by the property appraiser.

Example:

• 80k borrowed (the loan), 20k down payment, purchase price is 100k, property assessed at 100k. LTV: 80% (80/100)
• 80k borrowed, 0 down payment, purchase price is 80k, property assessed at 100k. LTV: 80% (80/100)
• 80k borrowed, 20k down payment, purchase price is 100k, property assessed at 80k. LTV: 100% (80/80)
• 135k borrowed, 25k down paymen, purchase price is 160k, property assessed at 145k. LTV: 93.1% (135/145)

Note however that some loans still come with a down payment (deposit) requirement, regardless of the LTV calculation - not every loan type allows 0 down payment, but regardless this has nothing to do with LTV.

So the point the person you were talking to was trying to make is that LTV is not based upon the listing price for a property, or even the purchase price of a property. It is based only on the amount of money you are borrowing, and the amount of value the property is appraised to have. No more, no less!

• Thanks for your comment BrianH. Imagine this situation: pay 160k for a property valued at 145k, borrowing 135k. Therefore: 135 borrowed (the loan), 24k down payment, purchase price is 160k, property assessed at 145k. LTV: 93% (135/145). Is this correct? Jul 16 '19 at 20:05
• @AntonioAndrés You are missing 1k (perhaps from the down payment or other source), but that doesn't effect your LTV calculation - so yes, you have your LTV calculated correctly! Added this example to the answer as well. Jul 16 '19 at 20:14
• Oh, yes, sorry, it's 25k. That's my situation and it concerns me a little bit regarding interest. I was offered the flat I rent for that price, but I am certainly sure the property will be assessed at at least 15k less. It is an area with high demand, so the selling prices tend to be much higher than the assessment (unless I am wrong and there is a lot of difference between "asking price" and the value the property is appraised to be). Shall I be worried? Or if you have any advice please I would be extremely grateful. Jul 16 '19 at 20:29
• As a comment, I think it's worth pointing out that in general in the UK the property will be assessed as being worth whatever you're paying for it. It's unusual for it to be valued lower in England & Wales (though it does happen) and it's almost unheard of for it to be valued higher (the valuer works for the mortgage company, who just want to know that the property is worth at least what you're paying). In Scotland, however, houses are routinely sold for over the appraised value. Jul 18 '19 at 14:58
• In Scotland, almost all houses are sold with Home Reports, which means a surveyor has valued the house for mortgage purposes and that valuation is made available to every enquirier. In some parts of Scotland houses go for over Home Report value, in others it is common for houses to be advertised as being below Home Report value to suggest you're getting a bargain. Jul 20 '19 at 9:47