Loan to Value, LTV
The loan-to-value, LTV, is a measure of the total amount of outstanding debt as a proportion of the market value of an asset. The estimation of the market value may come from an estimate (larger degree of uncertainty) or from complete survey (high degree of certainty). The loans are simply the sum of all the outstanding obligations that the asset is secured against.
|Value of asset(s)|
|Sum of old loan(s)|
This is the previous loan-to-value:
LTV numberThis is the loan-to-value (% to 2dp):
Remaining equity %:
amount of equity
The value from an asset or group of assets is derived from the sum of their parts and where those parts would transact on the open market at an arms length transaction. For example, with property, this would be the price that one may expect to receive on the open market in a standard auction or a sales process where multiple independent buyers have viewed the property.
The same would be true for other assets, such as a car and even other less liquid assets like bespoke machinery designed for a specific function.
Usually, for property, a surveyor would be able to produce a complete valuation which would include accurately measuring the property, inspecting its condition and also considering external market conditions. Whilst property is an obvious example by virtue of its market size, the same methods will be true for all other assets.
The loan comprises of all such loans and obligations that are registered against an asset or collection of assets. This may comprise of various legal charges and each will rank in order of preference usually by a deed of priority.
When the assets are sold the charges are paid off in their specified order until all charges are satisfied. The residual part (if any remains) being the equity which belongs to the owner.
If the value of the asset drops (due to market forces or any other reasons), then the LTV rises. If the LTV rises beyond 100% then the registered charges begin to suffer losses in sequential order with the first charge being the safest (first paid) and the second charge being the next safest (second paid) etc.
The larger the impairment, the greater the losses until a zero value is reached and the loss to all investors reaches 100%.