What does Loan to Value (LTV) Mean?

When applying for a mortgage, the term Loan to Value (LTV) is one of the most important factors to understand. LTV influences everything from how much you can borrow to the interest rates you’ll pay. In this blog post, we’ll break down what LTV means, how it’s calculated, and why it matters when securing a mortgage.

What Is Loan to Value (LTV)?

Loan to Value (LTV) is a ratio that compares the amount of money you borrow (your loan) to the value of the property you’re buying or remortgaging. It’s expressed as a percentage.

How Does LTV Work?

• If you’re buying a house worth £200,000 with a £40,000 deposit, you’ll need a £160,000 mortgage.
• The LTV is calculated as:

Or in this case:

An 80% LTV means your deposit covers 20% of the property’s value, while the mortgage covers the remaining 80%.

Why Is LTV Important?

1. Impact on Mortgage Rates

Lenders use LTV to assess the risk of lending. Generally:

• Lower LTV (e.g., 60%): Considered low risk. Borrowers are likely to secure lower interest rates.
• Higher LTV (e.g., 95%): Considered high risk. Borrowers may face higher interest rates.

2. Eligibility for Mortgages

Each lender has specific LTV limits for their mortgage products. For example:

• First-time buyers may access high LTV mortgages (up to 95%).
• For buy-to-let mortgages, LTVs are often capped at 75–80%.

3. Influence on Deposit Size

A lower LTV requires a larger deposit, which reduces the amount you need to borrow. Conversely, a higher LTV means a smaller deposit but higher borrowing.

LTV Bands and Their Effects

LTV is typically grouped into bands. Moving to a lower LTV band can unlock better rates. Here’s how LTV bands generally work:

How to Lower Your LTV

Increase Your Deposit
Saving more for a deposit will reduce the amount you need to borrow, lowering your LTV.

Opt for a Cheaper Property
Choosing a property with a lower purchase price can make your deposit stretch further.

Wait for Property Appreciation (For Remortgaging)
If your property increases in value over time, your LTV will decrease when you remortgage.

LTV and Remortgaging

When remortgaging, your LTV is recalculated based on the property’s current value and the outstanding mortgage balance. If your property has increased in value or you’ve paid down a significant portion of your mortgage, your LTV will likely improve, potentially qualifying you for lower rates. If you’re unsure of your home’s value then tools like the Zoopla Home Valuation may help give you a guide.

High LTV Mortgages: Pros and Cons

Pros

• Enables homeownership with a smaller deposit.
• Often the only option for first-time buyers.

Cons

• Higher interest rates and monthly payments.
• Greater risk of negative equity if property values fall.

Low LTV Mortgages: Pros and Cons

Pros

• Lower interest rates and monthly payments.
• Increased equity in your property from the outset.

Cons

• Requires a larger deposit, which may take longer to save.

How Mortgage Links Can Help You Find the Right LTV

At Mortgage Links, we specialise in helping borrowers find the best mortgage deals for their unique circumstances. Whether you’re a first-time buyer with a small deposit or a homeowner looking to remortgage, our expert advisors can guide you through the process.

👉 Contact us today to explore your mortgage options and make the most of your LTV.

FAQs About LTV

Q: Can I get a mortgage with a 100% LTV?
Yes there are now options available with 0% deposit which use your rental payments to justify your mortgage affordability.

Q: Does a lower LTV guarantee approval?
While a lower LTV improves your chances, lenders also consider other factors like your credit score, income, and affordability.

Q: What’s the best LTV for first-time buyers?
Many first-time buyers opt for 90–95% LTV mortgages due to lower deposit requirements. However, lower LTVs offer better rates if you can save more.

Understanding Loan-to-Value (LTV) is crucial when navigating the mortgage process. By knowing how it impacts borrowing and mortgage rates, you can make informed decisions that save you money in the long run. Start your journey with Mortgage Links today!

*All information up to date at time of writing, speak to your advisor for specific advice for your own circumstances.