Loan to Value

What is Loan to Value?

Loan to Value (LTV) is a percentage that describes the ratio of the mortgage loan in relation to the property value.

You will notice that mortgage deals include the LTV banding, for example, 60%, 75%, 85% LTV. The general rule to follow when it comes to Loan to Value is the lower the LTV, the lower the mortgage interest rates. To improve the LTV, you could either contribute more to the sale as a deposit or, if you can, negotiate a lower price with the seller. In the longer term, adding more to the house in terms of a deposit will increase your property equity, reduce the amount you owe and the overall interest you pay. 

What does loan to value mean?

The loan to value represents the percentage of the property that is yours. For example, if you buy a house worth £200,000 and contribute a deposit of £20,000, this would be calculated as 90% Loan to Value; 10% of the £200,000 is your equity in the property.

How to work out the loan to value

To calculate your LTV, you divide the value of the mortgage you need by the property value. For example, if you were looking to buy a property worth £300,000 and have a deposit of £60,000, this would mean you need a mortgage of £240,000. In this scenario, the calculation would be £240,000 / £300,000, giving a Loan to Value of 80%. 

How does loan to value affect mortgage interest rates?

The general rule to remember is that the higher the loan to value, the higher the rates you can expect to be offered.

This may not always be the case and will depend on your personal circumstances; for example, if you have bad credit, you may not be offered the same rates as someone with a good credit history. 

Another point to keep in mind is that mortgages are offered in LTV bandings, typically of 5-10% increments. This means that if your calculated LTV is 63%, you will not qualify for mortgages reserved for 60% or less. In this scenario, you would be better to adjust the LTV to 60% either by increasing your deposit or reducing the sale price. 

Why do rates increase with higher Loan to Value ratios?

You may wonder why with a lower deposit or equity, you are offered higher interest rates. The reason for this is that in the lender's eyes, the higher the LTV, the more sensitive the property is to value reductions. For properties without much equity, a minor decrease in house prices could result in negative equity, which would make the lender less likely to recoup their full loan amount if they need to recover the mortgage debt. 

What is the maximum loan to value?

In the UK, the maximum LTV achievable without a guarantor or family member support is generally 95%.

However, at the moment, 5% deposit mortgages are less likely to be offered due to the economic fallout of COVID-19. The maximum loan to value you can achieve will also depend on your circumstances, the type of property, the reason for the purchase, among other factors. Please speak to one of our expert advisers to learn more. 

Buy to let loan to value

For buy to let properties, you can expect to be offered a lower loan to value than if you were buying a residential home. Typically, this can be anywhere between 60-80%, which means you'll need to contribute a deposit of between 20-40% of the property value. The LTV offered will vary on the type of property and overall perceived risk from the lender's perspective.  

What is a good loan to ratio value?

There is no definitive 'good' loan to value. With that being said, once you reach equity of 40% equating to an LTV of 60%, you are unlikely to be offered any further rate reductions as your equity increases past 40%.  

Learn more and apply

Our team of mortgage experts have helped many people like you to get the best deal possible on their mortgage. Get started today and we promise to make your mortgage journey as stress-free as possible!