Loan to value (LTV) is the size of your mortgage loan as a percentage of the property value. Buy a £250,000 home with a £25,000 deposit and your mortgage amount is £225,000, so your LTV ratio is 90%. The lower your LTV, the less risk the lender is taking and the cheaper your mortgage is likely to be.
Most mortgage lenders price their deals in LTV bands, usually 60%, 75%, 80%, 85%, 90% and 95%. Each one sets its own pricing within each band, but mortgage rates almost always get cheaper as your LTV falls. The gap between 95% and 75% LTV can be more than 1% on the interest rate, which on a typical mortgage is well over £100 a month.
Many first time buyers start at 90% or 95% LTV, because saving a large deposit takes time. There are good mortgages at these levels, just fewer of them and at a higher price. As a whole of market mortgage broker, we can show you what is available at your LTV and whether a scheme could help.
When you remortgage, your LTV is the balance you still owe against what your home is worth now. If prices have gone up or you have been overpaying, you may already be in a cheaper band. Checking your value before your deal ends tells you exactly where you stand.
Loan to value guide
Your loan to value ratio is the single number that does most to decide which mortgage deals you can get. I look at it on every case before anything else, because a few thousand pounds either side of an LTV band can change the monthly payment by more than people expect. The loan to value calculator above does the maths for you. This guide explains how the LTV calculation works, what a good LTV looks like, and the practical ways to bring yours down.
To calculate LTV, divide the mortgage amount you need by the property value, then multiply by 100. That gives you your LTV ratio as a percentage.
For example, borrowing £180,000 on a home worth £240,000 works out as £180,000 divided by £240,000, which is 0.75. Multiply by 100 and your LTV is 75%. The remaining 25% is your deposit, or your equity if you already own the home.
If you would rather check the figures yourself, it takes three simple steps:
Our LTV calculator does the same job and also shows which band you fall into and what it would take to reach the next one down.
As a general rule, the lower the better. An LTV of 75% or below is a strong position with a wide choice of deals. At 60% or less you are in the lowest risk band, which is usually where the best mortgage rates sit.
A high LTV of 90% or 95% is not a problem in itself. Plenty of people buy that way, especially on their first step onto the property ladder. You will simply have fewer deals to pick from and pay a little more for them.
Mortgages are priced in LTV bands, usually 60%, 75%, 80%, 85%, 90% and 95%. Mortgage lenders see a lower LTV as lower risk, so it tends to come with lower interest rates. The step from one band to the next can be small, but over a few years it adds up.
As an illustration, on a £225,000 repayment mortgage over 25 years, the difference between a 4.5% and a 5.5% interest rate is about £131 a month in monthly payments. That is why a slightly bigger deposit is often worth waiting for.
Most homebuyers need a deposit of at least 5%, which means a 95% LTV mortgage. A 10% deposit takes you to 90% LTV and opens up more competitive deals. At 15% the choice widens again, and a 25% deposit gets you to 75%.
On a £250,000 home, that is £12,500 for 95% LTV, £25,000 for 90%, £37,500 for 85% and £62,500 for 75%. The table in the calculator shows these figures for your own price. If you are saving for your first home, our first time buyer mortgages page explains the schemes that can help with a small deposit.
When your current deal ends, your LTV is worked out from the mortgage balance you still owe against what your home is worth now. If prices have risen, or you have been overpaying, you may have moved into a lower band without realising.
I regularly see clients who have dropped from 90% to below 75% LTV in five years without doing anything differently. It is always worth checking before you sign up to a new deal. Our remortgage advice page covers the rest.
Landlords work to lower LTV limits. Most buy to let mortgage deals stop at 75% LTV, a few go to 80%, and the best pricing usually starts at 60% or 65%. That means you will normally need a deposit of at least 25%.
The rent also has to cover the mortgage by a set margin, so on some properties a larger deposit is needed to pass the rental test. Our buy to let mortgages page goes into more detail.
If property prices fall, your LTV goes up even though you owe the same amount. If the value drops below what you owe, you are in negative equity. That does not affect your monthly payments, but it can make it harder to move or to get a new deal at the end of your fixed rate.
A bigger deposit gives you more of a cushion. It is one reason I encourage clients not to stretch to the maximum LTV unless they need to.
LTV tells you how much you are borrowing against the property. Loan to income tells you how much you are borrowing against what you earn, and most mortgages are capped at around 4.5 times income.
You need to pass both. A big deposit will not help if the loan is too high for your income, and a high salary will not get you past the maximum LTV. Our mortgage borrowing calculator shows how much you could borrow.
There are only two ways to lower the LTV: borrow less, or have the property valued higher. In practice that means:
First time buyer, £250,000 home, £25,000 deposit. The loan is £225,000, so the LTV is 90%. Another £12,500 of deposit would bring it down to 85%.
Home mover, £400,000 home, £120,000 of equity. Borrowing £280,000 gives an LTV of 70%, comfortably inside the 75% band.
Deal ending, home now worth £320,000, £230,000 owed. The LTV is about 72%. Paying off £38,000, or a valuation of £383,334 or more, would take it to 60%.
Landlord, £200,000 flat, £50,000 deposit. The loan is £150,000, which is exactly 75% LTV and the most many buy to let deals allow.
What does LTV mean on a mortgage? LTV stands for loan to value. It is the size of your mortgage as a percentage of the property's value. A £200,000 mortgage on a £250,000 home is 80% LTV.
How do I calculate my LTV? Divide your loan amount by the value of the property and multiply by 100. Or simply enter your figures into the LTV calculator above.
What is the maximum LTV for a mortgage? For most residential mortgages it is 95%, which needs a 5% deposit. A few 100% mortgages exist for specific cases. Buy to let is usually capped at 75%.
Is 80% LTV good? Yes. An 80% LTV gives you a good choice of deals. Moving down to 75% can often knock a little more off the interest rate.
Does LTV use the purchase price or the valuation? It uses whichever is lower. If the surveyor values the home below the price you agreed, your LTV will be higher than you planned.
Does my LTV change over time? Yes. It falls as you repay the mortgage and as your home rises in value, and it rises if prices fall. That is why it is worth checking again whenever your deal is coming to an end.
