The LTV, an acronym for Loan To Value Ratio, is a financial term used to express the ratio of a loan to the value of an asset. It is a parameter expressed as a percentage that measures the ratio between the amount of the loan granted and the value of the property provided by the borrower as security for repayment of the loan.
It ranges from 0 to 100% (technically it could even be higher than 100), and the higher it is, the riskier the operation is.
How is the LTV calculated?
Let us suppose that a developer needs 100,000 euros to finance his project: renovation of a building in the centre of Madrid, and that as collateral he provides a property he owns valued at around 200,000 euros.
The LTV in this case would be 100,000 euros / 200,000 euros = 50%.
The guarantee provided by the developer is a mortgage guarantee that will be registered in the corresponding land registry and will block any operation that the developer may try to carry out with the property after the loan has been obtained. In this way, the interests of the investors in the project will be safeguarded with total security, being able to execute this guarantee in the event of non-payment by the developer. This mortgage guarantee is much more robust as a guarantee than a mortgage guarantee promise, than a pledge of shares, than a guarantee, than a public elevation of the debt or than a personal guarantee of the developer.