Liquidating debt decreases risk
However, when house prices decrease, this calculation can become even more misleading (Exhibit 1a).Given that a full evaluation is a costly process, revised property values, when provided, are often indexed values (LTIV).
The LTV is both an indicator of default risk (when calculated at loan origination) and an indicator of expected loss, when both the loan amount and the “V” are updated overtime.
The LTV can be calculated in different ways, depending on how the numerator and denominator are calculated.
Thus, LTV calculations can be country or even bank specific.
In this article, we take advantage of European Data Warehouse’s securitisation data to take a fresh look at this key indicator, and its field of application.
For instance, the “V” in LTV is not normally updated following loan issuance.