Loan-To-Value Ratio (LTV)

Update as of 17 December 2021: This article has been updated to include the latest LTV ratio for HDB housing loans, in light of the recent cooling measures announcement. 

Every day, 99.co picks a piece of property jargon to explain it. Today we look at the Loan-To-Value (LTV) Ratio, which affects how much you can borrow for your house.

What is Loan to Value Ratio (LTV)?

The LTV ratio is the amount you can borrow for your house (this amount is called the loan quantum). This is expressed as a percentage. For example, an LTV of 75% would mean you can borrow up to 75% of your property price or valuation, whichever is lower.

For example, say you’re buying a condo valued at S$1.5 million, in which the asking price is S$1.55 million. An LTV of 75% means your loan quantum would be 75% of S$1.5 million, or S$1.125 million.

Note that, in cases where the asking price is below the actual valuation (e.g. you have a desperate seller), the LTV will also decrease.

For example, if the valuation of the property is S$1.5 million, but the seller is willing to let it go for S$1.45 million, your LTV would be 75% of S$1.45 million (a loan quantum of around S$1.087 million).

Any amount not covered by the LTV will have to be paid in cash, or through your CPF (subject to the usual CPF limits). The amount not covered by the LTV is usually referred to as the down payment.

What affects the LTV?

The LTV is affected by the following:

• Whether you are using a bank or HDB loan
• A combination of your age, loan tenure, and outstanding home loans
• Your credit score
• The nature of the property

1. Whether you are using a bank or HDB loan

For HDB loans, the maximum possible LTV is 85%.

For bank loans, the maximum possible LTV is only 75%.

But there are more factors to consider besides the LTV when choosing between HDB and bank loans.

See here for more details about bank versus HDB loans.

2. A combination of your age, loan tenure, and outstanding home loans

The more outstanding home loans you have, the lower your LTV becomes. Your LTV is also reduced if the loan tenure would stretch beyond the retirement age of 65, or if you would exceed a loan tenure of 30 years (25 years for HDB properties).

These factors are cumulative in lowering your LTV:

	No outstanding home loans	One outstanding home loan	Two or more outstanding home loans
LTV Limit	75% if loan tenure does not exceed 30 years, and does not extend beyond your 65th birthday	45% if loan tenure does not exceed 30 years, and does not extend beyond your 65th birthday	35% if loan tenure does not exceed 30 years, and does not extend beyond your 65th birthday
55% if loan tenure exceeds 30 years*, or extends beyond your 65th birthday	25% if loan tenure exceeds 30 years*, or extends beyond your 65th birthday	15% if loan tenure exceeds 30 years*, or extends beyond your 65th birthday
*25 years if the property being purchased is an HDB flat

3. Your credit score

A history of bad credit (e.g. late repayments on credit cards, defaults on personal loans) will lower your LTV. You can check your credit rating with the Credit Bureau of Singapore (CBS).

You can find out more about interpreting your credit score here.

In some cases, not having used credit before can lower your LTV. This is because the bank cannot check your credit history, and hence cannot determine if you’re trustworthy.

One simple way to fix this is to temporarily use a credit card as a mode of payment only (this means you charge purchases to the card, but immediately pay it back so there is no interest accrued). Do this at least 12 months prior to your loan application.

Note that a credit score of BB or lower is sufficient to lower your LTV.

As such, we advise you to start improving your credit score at least 12 months prior to any loan applications. You can do this by consolidating your debts, paying your loans on time, or closing credit lines that you don’t use (speak to a financial advisor for more help).

4. The nature of the property

As mentioned above, the LTV is affected by the valuation of the property. However, there are other factors to consider as well.

Most banks will give you a lower LTV for properties that are located overseas. In addition, some banks will lower the LTV for properties that they deem undesirable, or difficult to sell should they have to foreclose.

Some examples would be an ageing bungalow in the red light district of Geylang, or a property in which residents are suing the developers for defects.

You may want to shop around at different banks in these situations, as banks rate risks differently from one another. A mortgage broker can do this for you for free (check out a home loans comparison site).

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Do you have any thoughts about LTV? Let us know in the comments section below. 

If you found this article helpful, 99.co recommends Property Jargon of the Day: Total Debt Servicing Ratio (TDSR) and Your complete guide to LTV limits.