Loan-to-Value (LTV) shows how much of a property’s value is covered by your mortgage.
It is shown as a percentage.
For example, if a home costs £200,000 and you borrow £180,000, your LTV is 90%.
LTV is important because it can affect the mortgage deals available to you.
What Does LTV Mean?
LTV stands for Loan-to-Value.
It compares two figures:
The amount you borrow
and
The value of the property
A high LTV means you are borrowing a large part of the property’s value.
A low LTV means you are borrowing less.
How Do You Calculate LTV?
The calculation is simple:
Mortgage ÷ Property value × 100 = LTV
For example:
Property value: £200,000
Mortgage: £180,000
So:
£180,000 ÷ £200,000 × 100 = 90%
Your LTV is 90%.
How Does Your Deposit Affect LTV?
A larger deposit means you need a smaller mortgage.
Therefore, your LTV will be lower.
For a £200,000 property:
| Deposit | Mortgage | LTV |
|---|---|---|
| £10,000 | £190,000 | 95% |
| £20,000 | £180,000 | 90% |
| £30,000 | £170,000 | 85% |
| £40,000 | £160,000 | 80% |
| £50,000 | £150,000 | 75% |
| £80,000 | £120,000 | 60% |
So, a bigger deposit can reduce your LTV.
Why Does LTV Matter?
Lenders often use LTV when setting their mortgage deals.
For example, a lender may offer different deals at:
- 95% LTV
- 90% LTV
- 85% LTV
- 80% LTV
- 75% LTV
- 60% LTV
These are often called LTV bands.
Generally, a lower LTV can give you more mortgage choices.
It may also give you access to lower interest rates.
However, this is not guaranteed.
Why Can a Lower LTV Help?
A mortgage is secured against your home.
Therefore, lenders consider the value of the property when deciding how much to lend.
For example, imagine two people buy homes worth £200,000.
One borrows £190,000.
The other borrows £150,000.
The second person is borrowing much less compared with the property’s value.
Therefore, the lender is taking less risk if property prices fall.
This is why lower LTV mortgages can sometimes have better rates.
What Is a 95% LTV Mortgage?
A 95% LTV mortgage covers 95% of the property’s value.
You would usually provide the other 5% as a deposit.
For example:
Property price: £200,000
Deposit: £10,000
Mortgage: £190,000
Therefore, the LTV is 95%.
A 95% mortgage can help someone buy a home with a smaller deposit.
However, the rates may be higher than those available with a larger deposit.
What Is a 90% LTV Mortgage?
A 90% LTV mortgage covers 90% of the property’s value.
Therefore, you would usually provide a 10% deposit.
For example:
Property price: £200,000
Deposit: £20,000
Mortgage: £180,000
Your LTV is 90%.
What Is a 75% LTV Mortgage?
A 75% LTV mortgage covers three-quarters of the property’s value.
For example:
Property value: £200,000
Mortgage: £150,000
Therefore:
£150,000 ÷ £200,000 × 100 = 75%
The remaining 25% is not covered by the mortgage.
Does a Lower LTV Guarantee a Better Mortgage?
No.
LTV is only one part of a mortgage application.
A lender may also look at your:
- income
- spending
- debts
- credit history
- employment
- mortgage term
- property
Therefore, a large deposit does not guarantee that you will get a mortgage.
You still need to meet the lender’s other rules.
Should You Use All Your Savings for the Deposit?
Not necessarily.
A larger deposit may reduce your LTV.
However, buying a home involves other costs.
For example, you may need money for:
- legal fees
- property taxes
- moving costs
- furniture
- repairs
- emergencies
Therefore, think about your wider finances.
A lower LTV can be useful. However, having some savings left after buying can also be important.
What Happens to Your LTV Over Time?
Your LTV can change after you buy your home.
Two things mainly affect it:
Your mortgage balance
and
Your property’s value
With a repayment mortgage, your balance should gradually fall.
Meanwhile, your property’s value can rise or fall.
Therefore, your LTV can also change.
How Can Your LTV Fall?
Imagine you buy a home for £200,000.
You borrow £180,000.
Your starting LTV is 90%.
Several years later, your mortgage balance has fallen to £160,000.
If the home is still worth £200,000:
£160,000 ÷ £200,000 × 100 = 80%
Your LTV has fallen to 80%.
This could give you more options when you next change your mortgage.
What If Your Home Rises in Value?
A rise in your property’s value can also lower your LTV.
For example:
Property value: £250,000
Mortgage balance: £175,000
Your LTV would be:
£175,000 ÷ £250,000 × 100 = 70%
However, house prices do not always rise.
Also, the lender may use its own valuation.
Therefore, do not rely on an estimated property value.
What If Your Home Falls in Value?
A fall in value can increase your LTV.
For example:
Property value: £190,000
Mortgage balance: £180,000
Your LTV is about:
95%
A higher LTV may reduce the number of mortgage deals available.
Therefore, falling house prices can make remortgaging more difficult.
What Is Negative Equity?
Negative equity happens when you owe more than your home is worth.
For example:
Property value: £180,000
Mortgage balance: £190,000
You owe £10,000 more than the property’s value.
This also means your LTV is above 100%.
Negative equity can make selling or changing mortgage more difficult.
Can Overpayments Reduce Your LTV?
Yes.
An overpayment reduces your mortgage balance.
Therefore, it can also reduce your LTV.
For example:
Property value: £200,000
Mortgage balance: £155,000
Your LTV is:
77.5%
You then make a £5,000 overpayment.
Your balance falls to:
£150,000
Your LTV is now:
75%
This could move you into a different LTV band.
However, check your mortgage before making an overpayment. Limits or charges may apply.
Why Are LTV Bands Important?
Lenders often group mortgages into LTV bands.
For example, one deal may be available up to 80% LTV.
Another may be available up to 75% LTV.
Therefore, being close to the next band can be worth checking.
A Simple Example
Suppose your home costs:
£200,000
You want to borrow:
£152,000
Your LTV is:
76%
However, a mortgage of £150,000 would give you:
75% LTV
Therefore, an extra £2,000 deposit would take you into the 75% band.
A different mortgage deal may then become available.
However, check how much you would actually save before using more of your savings.
Which Property Value Does the Lender Use?
The lender needs to decide how much the property is worth.
It may arrange a mortgage valuation.
Sometimes, the lender’s valuation is lower than the price you have agreed to pay.
This can affect your LTV.
What Is a Down Valuation?
A down valuation happens when the lender values the property below the agreed price.
For example:
Agreed price: £250,000
Lender’s valuation: £240,000
The lender may use the lower figure when deciding how much it will lend.
Therefore, you may need a larger deposit.
You could also try to agree a lower purchase price with the seller.
How Does LTV Work When Remortgaging?
LTV is also important when you change your mortgage.
For example:
Home value: £300,000
Mortgage balance: £180,000
Therefore:
£180,000 ÷ £300,000 × 100 = 60%
Your LTV is 60%.
You can then look at mortgage deals available at that LTV.
Does LTV Apply to Buy-to-Let?
Yes.
Buy-to-let lenders also use LTV.
However, their rules can be different.
For example, you may need a larger deposit.
The lender may also look at the rent the property is expected to earn.
Therefore, LTV is only part of a buy-to-let mortgage decision.
Does LTV Apply to Second Homes?
Yes.
Second home mortgages also have LTV limits.
Again, you may need a larger deposit.
The lender will also check whether you can afford both properties.
What About New-Build Homes?
Some lenders have different LTV limits for new-build homes.
The rules may also differ between new-build houses and flats.
Therefore, check the lender’s rules before applying.
Is LTV the Same as Equity?
No. However, the two are closely linked.
LTV shows how much of the property’s value is covered by your mortgage.
Equity is the part of the property that is not covered by your mortgage and other secured borrowing.
For example:
Property value: £200,000
Mortgage: £150,000
Your LTV is:
75%
Your equity is:
£50,000
So, you have 25% equity before other secured borrowing and selling costs are considered.
How Can You Lower Your LTV?
Your LTV may fall if:
- you provide a larger deposit
- you repay your mortgage
- you make overpayments
- your home rises in value
However, property prices can also fall.
Therefore, do not depend on rising house prices to reduce your LTV.
What Should You Remember?
LTV is much simpler than it may first appear.
The calculation is:
Mortgage ÷ Property value × 100 = LTV
A higher LTV means you are borrowing more compared with the property’s value.
A lower LTV means you are borrowing less.
Generally, a lower LTV can give you more mortgage choices.
However, LTV is only one part of getting a mortgage.
Your income, spending, debts and credit history also matter.
Most importantly, do not use all your savings simply to reach a lower LTV.
Consider the full cost of buying your home and keep your wider finances in mind.