Loan to Value (LTV) is a percentage that tells you how safe a loan is. You divide the amount of the loan by the value of the building. So if I buy a building for 10 million with a 6 million loan and 4 million of my own money then I have an LTV of 60%.

This means if I go bankrupt then the bank can sell the building and get its money back.

If the value of the building halves because the rent halved then I have a 6 million loan on a 5 million building. My LTV is 120%. The bank cannot get its money back by selling the building.

No bank is going to give me a loan on a property with an LTV of 120% so I’m stuck with my current bank. My current bank then increases my interest rate because I am now a very high risk customer who can’t leave. This is very expensive for me.

One way out of this situation is to get my LTV back to 60% which means I need to reduce the loan to 3 million by finding 3 million to pay off part of the loan.

Another way out is to sell the building for 5 million then pay the bank one million, exiting the deal with a loss of 1 million.

None of these are good for me. I’ll do anything to keep the value of the building high by charging high rents even if no one can actually pay the rents and the building sits empty.

Long term I might be able to exit by getting permission to convert it to flats.

The backing of the loan is in part based on the value of the asset, so you need to add collateral to accommodate a reduction in the asset value.

Basically you have to pay a lot more if the building value goes down