Ama bought a flat for £200,000 with a £190,000 interest-only mortgage. The flat is now valued at £176,000 and the balance is unchanged. How much negative equity does she have, and what is her current LTV?
Negative equity is the debt minus the current value: £190,000 − £176,000 = £14,000. LTV is the loan divided by the current value: £190,000 ÷ £176,000 × 100 = 108.0% (Walbrook (formerly LIBF) CeMAP spec, MRT1 AC5.1). Using the £200,000 price as the debt gives £24,000 and 113.6%; dividing value by loan gives 92.6%; 95.0% is her LTV at purchase, which is out of date once the value falls.
Calculating LTV against the purchase price instead of today's value.
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