Loan-to-Value (LTV) ratio is a crucial factor in property financing that determines how much a bank is willing to lend a buyer based on the property’s value. In Malaysia, LTV plays a significant role in home loan approvals and investment strategies. Understanding LTV can help property buyers plan their purchases wisely and maximize their financing options.
What is Loan-to-Value (LTV) Ratio?
LTV is expressed as a percentage and represents the proportion of a property’s value that a bank will finance through a loan. The formula is:
LTV (%) = (Loan Amount / Property Value) x 100
For example, if a property is valued at RM500,000 and the bank offers an LTV of 90%, the maximum loan amount would be RM450,000, requiring the buyer to pay the remaining RM50,000 as a down payment.
LTV Limits Based on Property Purchase
1. First Residential Property
- LTV: Up to 90% (or even 100% under special government schemes)
- Who qualifies?
- Malaysian citizens purchasing their first home
- Applicable for both completed and under-construction properties
- Special Cases:
- Government schemes such as PR1MA, MyHome, and Rumah Selangorku may offer up to 100% financing for eligible buyers.
2. Second Residential Property
- LTV: Up to 90%
- Who qualifies?
- Malaysians buying a second home for own stay or investment
- Bank’s considerations:
- Borrower’s financial capacity and debt service ratio (DSR) will be assessed before approval.
3. Third Residential Property and Above
- LTV: Maximum 70%
- Reason for lower LTV:
- To curb property speculation, Bank Negara Malaysia (BNM) enforces stricter lending rules.
- Requires a higher down payment to ensure financial responsibility.
- Exceptions:
- High-income buyers with a strong financial standing may negotiate higher financing with select banks.
LTV for Different Buyer Categories
| Buyer Category | LTV Limit | Remarks |
|---|---|---|
| First-time homebuyer | 90% – 100% | Some government schemes offer full financing. |
| Second-time homebuyer | Up to 90% | Bank assessment required. |
| Third property & above | Maximum 70% | Stricter financing conditions. |
| Foreign buyers | 50% – 70% | LTV depends on bank and property location. |
| MM2H buyers | Up to 80% | Based on MM2H criteria. |
| Commercial property buyers | Up to 80% | Banks offer different rates based on risk factors. |
Factors That Affect LTV Approval
- Income & Financial Profile
- Higher, stable income improves chances of securing higher LTV.
- Banks evaluate debt service ratio (DSR) to ensure loan affordability.
- Credit Score (CCRIS & CTOS)
- Poor repayment history may lead to lower LTV offers.
- Maintaining a good credit record can help secure higher financing.
- Property Type & Location
- Properties in prime areas like KLCC, Mont Kiara, and Bangsar often qualify for higher LTV.
- High-risk properties, such as certain serviced apartments, may have lower LTV limits.
- Foreign Ownership & MM2H Program
- Foreigners under MM2H may receive 70%-80% LTV, depending on the bank.
- Other foreign buyers typically receive 50%-60% LTV, unless purchasing premium properties.
How to Increase Your LTV Approval Chances
- Improve Your Credit Score
- Settle outstanding debts and maintain a good repayment history.
- Reduce financial commitments before applying for a loan.
- Apply for a Joint Loan
- Applying with a spouse or family member increases total income, improving eligibility.
- Leverage Government Housing Schemes
- PR1MA, MyDeposit, and Rumah Selangorku offer higher financing for eligible buyers.
- Show Strong Savings & Investments
- Banks prefer borrowers with strong financial reserves, as it demonstrates financial stability.
Why Is This Important?
Understanding LTV is essential for Malaysian property buyers and investors. First-time buyers can enjoy up to 90% LTV, while third-time property investors face a 70% cap to discourage speculation. Foreign buyers typically receive 50%-70% LTV, though MM2H applicants may secure better terms.
If you’re planning to buy a property, particularly in high-demand areas like KLCC, Mont Kiara, or Bangsar, having a strong financial profile and understanding LTV rules can help maximize your mortgage approval chances.
For personalised advice on financing your next property, feel free to contact us at ARK United Realty for expert property insights!
