What is Loan to Value?

What does Loan to Value mean in mortgages?

Loan to Value (LTV) is the percentage of the property’s value that you’re borrowing from a mortgage lender. So if you’re buying a £200,000 property and taking out a £180,000 mortgage, your LTV is 90% — because you're borrowing 90% of the purchase price and putting down the remaining 10% as a deposit.

The lower your LTV, the less risky you appear to lenders. That’s because you’re borrowing a smaller proportion of the property’s value. Lenders tend to offer borrowers with a smaller LTV lower mortgage rates, which makes your mortgage payments more affordable.

Keep in mind that lenders tend to assign different mortgage rates to different LTV bands, typically 95% LTV, 90% LTV, 85% LTV etc. If you’re between two LTV bands, you'll generally be assessed using the higher LTV band. For example, if you have a 7% deposit saved, you’ll typically be offered the rate assigned to the 95% LTV band, not 90% LTV. This means you'll likely be offered higher interest rates and potentially fewer mortgage options than if you were in the lower LTV band. 

How to calculate Loan to Value?

To work out your LTV, use this simple formula:

(Mortgage amount ÷ Property value) × 100 = LTV %

Example:
You’re buying a home worth £250,000 and you have a £25,000 deposit. That means you need a £225,000 mortgage.

£225,000 ÷ £250,000 = 0.9 → 0.9 × 100 = 90% LTV

In this case, your Loan to Value would be 90%.

You can also use your LTV to figure out how much deposit you’ll need for a certain mortgage product, or whether putting in a bit more upfront could get you a better deal.

What's a good LTV?

There’s no one-size-fits-all answer, but the lower your LTV, the less risky you’ll be considered to lenders. You may also have a wider choice of lenders and mortgages to choose from with a lower LTV, along with access to lower interest rates. 

100% LTV: If you’re struggling to save a deposit, you may be able to get a 100% LTV mortgage. Skipton Building Society, for example, will give eligible borrowers a 100% mortgage if they can prove they’ve paid their rent and household bills in full and on time for 12 months. Borrowers will also need to pass Skipton’s eligibility and affordability checks first, however.

95% LTV: If you’re able to save a 5% deposit, you’ll have more mortgages to choose from than you would with no deposit at all. This should give you access to better mortgage rates and may make your monthly repayments that little bit lower. 

90% LTV:  Typically, it’s recommended to aim for at least a 10% deposit (90% LTV). By putting down a 10% deposit, you’ll usually have access to more choice and better rates than you would if you took out a 95% or 100% mortgage. Your monthly repayments should be more manageable too.

80% LTV or lower: Buying a home with a deposit of 20% or more is considered less risky for lenders and will usually give you access to a much wider choice of mortgage products and competitive rates.

So, the lower your LTV, the better your borrowing position, but that doesn’t mean high LTV mortgages are bad. They can still be a great stepping stone onto the property ladder, especially with the help of government schemes or family support. 

Learn more: What is the lowest LTV on a mortgage?

How LTV is used by lenders

Lenders use your LTV to assess how risky the mortgage is. They’ll also use it to decide:

• What mortgage products you’re eligible for
• What interest rate to offer you
• How much they’re willing to lend you

In short, the lower your LTV, the less risk you pose, and the better your chances of getting approved with a competitive rate.

Some lenders also cap how much they’ll lend at certain LTV levels. For example, you might be able to borrow 4.5 times your income at 85% LTV, but only 4 times your income if your LTV is 95%.

How to improve your LTV ratio​

If you want to lower your LTV and unlock better mortgage deals, here are a few ways to do it:

Save a bigger deposit

Depending on the price of your property, even an extra couple of thousand pounds could push you into a lower LTV bracket. This can make your monthly costs more manageable as you may be offered a lower interest rate by going into a lower band. As this means you’ll be paying less interest on your loan, this may make it easier to build equity in your home over time.

One way to save a deposit faster is by opening a Lifetime ISA. You can save up to £4,000 per tax year, and the government will give you a 25% bonus — up to £1,000 each tax year. It’s one of the most efficient ways to grow your deposit, especially if you choose a LISA with a competitive interest rate like the Tembo Cash Lifetime ISA, offering a market-leading 4.33% AER interest rate (variable).

Buy a cheaper property

If you’re able to be flexible on location or property type, buying at a lower price automatically reduces your loan size if you deposit size stays the same, and therefore your LTV. Negotiating on house price can also help you reduce your LTV by reducing what you need to borrow to purchase the same property. 

See our tips on how to negotiate on house price here.

Use a gifted deposit or family support

If a relative is happy to help with your deposit, that could reduce your LTV and boost your affordability. There are dozens of ways that family members can help you buy a home, and they don’t necessarily need cash in the bank to make a difference. With a Deposit Boost, for example, they could release equity from their property and gift the proceeds to you to increase the deposit on your own home, reduce your LTV in the process.

Learn more: Can a parent help with a mortgage?