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Mortgage Advisor & Director
What does LTV mean? Loan to Value (LTV) is the term used to describe the percentage of the total property value you borrow when you buy a home - so the propery value, minus your deposit. So, if your deposit is worth 10% of the property value, you borrow the other 90% - which is written as 90% LTV
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.
How to calculate LTV
To calculate your LTV ratio: 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, you need a mortgage loan of £240,000. In this scenario, the calculation would be £240,000 / £300,000, giving a Loan to Value of 80%.
In other words you're borrowing 80% of the total propery value.
Lenders typically use LTV bands (or thresholds) to determine their rates, and while there can be varied banding, most lenders use the following LTV bands
| LTV band | Deposit required |
| 100% LTV | No deposit mortgages |
| 95% LTV | 5% deposit |
| 90% LTV | 10% deposit |
| 85% LTV | 15% deposit |
| 80% LTV | 20% deposit |
| 75% LTV | 25% deposit |
| 70% LTV | 30% deposit |
| 65% LTV | 35% deposit |
| 60% LTV | 40% deposit |
What is the maximum loan to value on a mortgage?
In the UK, the maximum LTV available is 100%, although this is not widely achievable without a guarantor or family support. Most lenders offer a maximum of 95% LTV.
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. Anything that lenders deem to make a mortgage higher risk, such as bad credit, self-employed income, non-standard construction property types, etc, can limit the LTV they are willing to offer you.
What is a good loan to ratio value?
There is no definitive 'good' loan to value for a mortgage. The best LTV available to you is going to come down to affordability and deposit size. The larger the deposit (or equity amount with a remortgage) you can offer, the lower the LTV available to you.
Those mortgages with the lowest LTV tend to qualify for the best interest rates. With that being said, once you reach a deposit or equity of 40% equating to an LTV of 60%, you are unlikely to be offered any further rate reductions beyond that.
Why is LTV important?
LTV is important because it detmines how much you can borrow, i.e the maximum LTV a lender will offer, and how much interest you'll pay on your mortgage. Mortgages are offered in LTV bandings, typically of 5-10% increments, and lenders usually set their interest rates per increment. This means that if your calculated LTV is 63%, you will not qualify for mortgages reserved for 60% or less, but rather rates on a 65% LTV mortgage. In this scenario, you would be better to adjust the LTV to 60% either by increasing your deposit or reducing the sale price.
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, even if you have the same percentage deposit as them.
Why do rates increase with higher Loan to Value ratios?
In the lender's eyes, the higher the LTV, the more vulnerable 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.
This is why negative equity is more likely if you take out 100% LTV mortgage.
How to reduce your LTV
To improve the LTV, you could either contribute a larger deposit or negotiate a lower price with the seller so that your current deposit forms a higher percentage of the total property price. It's also worth noting that not all lenders reduce the LTV of their borrowing based on the same reasons. They all assess risk differently, which means that where one lender may reduce the LTV available to self-employed borrowers with less than 3 years of trading history, for example, another lender may not.
The best way to secure the maximum LTV for your specific circumstances is to speak to an experienced broker, like ourselves. We can recommend those lenders offering the highest LTV for your circumstances, or the lowest rates based on your current LTV, depending on your individual priorities.
Get mortgage advice tailored to your LTV
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. This is because buy-to-let borrowing is considered commercial in nature, so tends to be more risky than residential borrowing.
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