Find out what LTV is, why it affects your mortgage and how you can improve it to obtain more advantageous financing conditions.
- Understanding LTV is essential to understanding how banks assess risk and determine the amount they are willing to finance.
- Knowing the limits imposed by the Bank of Portugal and the exceptions can make all the difference when planning your purchase.
- Small actions, such as increasing your initial deposit or choosing a property with good appreciation potential, can greatly improve your LTV.
- The valuation of a property does not always reflect its real potential; in these cases, there are ways to contest it and request a new analysis.
It doesn’t appear in advertisements, it’s not a topic of conversation among friends, but it can decide whether the bank says ‘yes’ or ‘we need to review the proposal’.
We are talking about LTV or Loan-to-Value, the indicator that any bank analyses with a magnifying glass. Find out what this indicator is, how you can improve it and why you should pay attention to it before signing any contract.
What is LTV?
LTV stands for Loan-to-Value and is one of the indicators that best reflects the balance between the value of a property and the amount of financing associated with it. In simple terms, it shows the percentage of the purchase price that is covered by a loan.
An LTV of 80%, for example, means that the bank finances 80% of the property value, while the remaining 20% is covered by (your) equity. The lower the LTV, the lower the risk associated with the transaction for the bank.
For investors, LTV helps to define the ideal financing structure, balancing profitability and risk exposure. For individuals, it is an essential metric when negotiating credit terms, such as interest rates, maturities and even the flexibility of future transactions.
Why it is important to know the LTV
Understanding LTV means understanding the financial basis of any property investment.
A lower LTV is generally synonymous with stability: there is more equity involved, less risk for the bank and, generally, more favourable credit terms. A higher LTV opens doors with less initial capital but can lead to higher interest rates or less flexibility in the future.
Understanding this relationship is essential for anyone buying a home, structuring an investment or choosing a type of financing.
How to calculate LTV
Calculating LTV is simpler than it seems. The formula is straightforward:
LTV = (Loan amount ÷ Property value) x 100
For example, if the property is valued at €400,000 and the financing is €300,000, the LTV will be 75%. This figure indicates that the bank covers three-quarters of the investment and the buyer contributes the remainder from their own capital.
What LTV is considered healthy?
In general, an LTV between 70% and 80% is considered balanced. It offers access to good credit conditions without overexposing either the buyer or the bank.
Below 70%, the investment tends to be seen as solid and low risk, which is reflected in more competitive interest rates and greater room for negotiation.
Above 90%, we enter a more sensitive zone, where any variation in the market or change in rates can have a direct impact on instalments and asset valuation.
This is why banks use LTV as a kind of filter: to set rates, approve credit and assess the robustness of each transaction.
But the truth is that the ideal LTV always depends on the profile of the buyer and the nature of the property. An investor with a long-term strategy may prefer a more conservative ratio. A buyer looking for their first home may opt for a higher LTV, prioritising entry into the market.
Steps to achieving a good LTV
Achieving a good LTV involves planning, vision and conscious choices. Here are some steps that can help you structure your investment in the right way.
1. Start with a realistic budget
It all starts with an honest assessment of your financial capacity. Knowing how much you can invest without compromising your stability is the first step in defining a healthy LTV. A realistic budget gives you room to negotiate and avoids hasty decisions.
2. Increase your initial deposit
Whenever possible, increase the deposit amount. The more you invest from your own capital, the lower the LTV will be and the better the loan conditions tend to be. Small adjustments to the deposit can translate into significant savings in the long term.
3. Choose your property wisely
LTV is based on the property’s valuation, not just the purchase price. Opting for properties with a solid location, good liquidity and potential for appreciation reduces risk and can even improve the final ratio.
4. Compare financing proposals
Not all banks assess risk in the same way. Analysing different institutions and simulating conditions helps you find the right balance between the amount financed and the cost of credit. A difference of a few percentage points in the LTV can completely change the final result.
5. Maintain a solid financial history
Your credit history matters. A good banking record, stable income and no outstanding debts increase the confidence of institutions and can open up access to better conditions, even with a higher LTV
6. Consider the long term
A good LTV is not just what makes the purchase easier. It is what ensures balance in the years to come. Assess how the instalments fit into your life, consider scenarios of rising rates and always leave yourself a comfort margin.
LTV: frequently asked questions
Below we answer some of the most common questions about LTV.
Are there limits to LTV?
Yes. The Bank of Portugal sets limits to ensure that credit is granted responsibly and that customers do not take excessive risks.
Currently, the limit is 90% for owner-occupied and permanent housing, 85% for mortgage-backed loans, 80% for second homes and 75% for rental properties.
In practice, however, most banks work with more conservative values (usually between 70% and 80%) to ensure a healthy balance between risk and security.
Is it possible to have an LTV of 100%?
In very specific situations, yes. The Bank of Portugal allows LTVs of up to 100% when it comes to the purchase of properties belonging to the bank itself, i.e. properties repossessed due to default. In addition, the LTV may be higher when the loan is granted under the Public Guarantee for young people up to 35 years of age, which allows the entire amount to be financed without the need for an initial deposit.
Even so, these situations are exceptional and require the loan to be taken out with the institution that owns the property or that includes the customer in the guarantee programme.
Does LTV only apply to mortgage loans?
No. LTV is relevant whenever there is a mortgage-backed loan, i.e. when an asset is given as collateral to secure the loan.
In the most common case, this guarantee is the house itself, but it can also involve other assets of significant value, such as land, vehicles or boats. The principle is the same: the value of the asset must be higher than the amount of the loan, to ensure protection for both parties.
What can I do if I disagree with the property valuation?
Property valuation is not an exact science. It involves market data, technical criteria and the individual experience of the expert. If you feel that the value attributed to the property is unfair or inappropriate, you can request a reassessment, providing concrete justification (e.g. recent works, structural improvements or discrepancies compared to similar properties).
A new valuation may, in some cases, improve the LTV and thus allow for more favourable credit terms.
Does property valuation incur costs?
Yes. When the valuation is requested by the bank, the cost is charged in the form of a bank commission, varying according to the type of property and location.
On average, the costs range from €200 to €350. Although it represents an initial cost, it is an essential step: it is on the basis of this valuation that the LTV is defined and, ultimately, the viability of the financing.
Does the LTV influence mortgage insurance?
Yes. A higher LTV may represent a greater risk for the financial institution, and, in some cases, this is reflected in the insurance premium associated with the loan.
Therefore, in addition to looking at interest rates and instalments, it is worth considering the impact of the LTV on additional costs, such as life insurance and property insurance.
Vantage projects for a luxury LTV
Between the city and the sea, the urban rhythm and family tranquillity, our developments are designed for those seeking comfort, style and quality of life in every square meter.
Sea & Sun: coastal living with urban energy
Just a stone’s throw from the beach, with easy access to the underground, supermarkets and parks, this is the ideal place for those who like to enjoy every moment. Each apartment has been designed to offer bright interiors and quality finishes, in an environment that exudes calm, but also dynamism. It is the perfect home for those who want to be close to everything without losing the pleasure of living by the sea.
Comendador 45: sophistication you can feel every day
In the centre of Matosinhos, Comendador 45 combines the hustle and bustle of the city with a haven of comfort and well-being. It is the place where you can have breakfast in abundant natural light, work in an inspiring coworking space without leaving home, or simply relax in the top floor lounge with a view that changes with the day. With solutions designed for everyday life, such as a garage with electric charging and shared laundry facilities, the project makes every moment simpler and more enjoyable.
A Avenida: space to grow, live and smile
The A Avenida project was designed for families looking for space, freedom and community. With spacious flats, balconies that connect the interior to the exterior and generous green areas, each day brings new possibilities: whether it’s a dip in the pool, a game of padel or a safe stroll through the gardens. The location combines tranquillity with proximity to the city, making every trip simple and comfortable.
LTV and VantageGroup: what really matters when investing
Understanding LTV means understanding much of what lies behind a successful real estate decision. Knowing how much to finance, how much to invest and what the ideal balance between risk and return is, is what distinguishes a hasty purchase from a structured and lasting choice.
At Vantage, we follow this process in an integrated manner, from identifying the best market opportunities to providing financial guidance that helps each buyer or investor define the most balanced LTV for their profile. When you understand what is at stake, each decision takes on a different weight, a different sense of calm and a different horizon. Contact us.
FRANCISCO SIMÕES
CEO & Partner at Vantage Group
Francisco Simões leads Vantage Group with a clear vision: good architecture and quality property development are not a luxury, but a responsibility. With projects in Portugal, he combines strategy, innovation and rigor to create developments that enhance the urban experience and reinforce the value of the communities in which they are located.