If you’re thinking about buying a home, you might have come across the term loan-to-value or LTV. At first, it can sound a bit technical, but it’s actually a simple concept that plays a big role in your mortgage options. 

Whether you’re a first-time buyer or planning on remortgaging, understanding mortgage loan-to-value can help you work out how much you might be able to borrow, what deposit you’ll need, and what kind of mortgage deals could be available to you.

The Knowledge Round-Up

  • Loan-to-value (LTV) shows how much you borrow compared to the property value

  • A lower LTV mortgage can mean better rates and more choice

  • A high loan-to-value mortgage (90% or 95%) may come with higher interest rates

  • You can work out your LTV using a simple formula or a calculator

  • A larger deposit can help reduce your LTV and improve your mortgage options

Check your credit score for free with CreditKnowledge before starting your mortgage application

What is Loan to Value (LTV)?

The loan-to-value ratio simply shows how much of a property’s value you’re borrowing from a lender. When buying a home, you usually put down a deposit and borrow the rest as a mortgage. LTV measures the borrowing as a percentage of the total purchase price.

For example:

  • House price = £250,000

  • Deposit = £25,000

  • Mortgage = £225,00

Your mortgage loan-to-value would be 90%, meaning you’re borrowing most of the property’s value.

How Do You Calculate Loan-to-Value Ratio?

Calculating your loan-to-value ratio is a very straightforward formula. You can either work it out manually or use a loan-to-value mortgage calculator to do it for you.

Here’s how to calculate your LTV:

LTV = (mortgage amount/property value) * 100

For example: 

  • Property value = £300,000

  • Deposit  = £60,000

  • Loan amount = £ 240,000

£240,00 / £300,000 = 0.8

0.8 * 100 = 80% LTV

So in this instance, you would be looking at mortgage deals available at 80% loan-to -value.

Why Does Loan-to-Value Matter?

Your loan-to-value ratio is one of the main things a mortgage lender will consider when assessing your application. It helps them to understand how much risk could be involved in lending to you. This is why many buyers aim to save a larger deposit, as it can open more options and reduce costs over time.

Lower LTV (e.g. 60% to 70%)

  • More mortgage deals available

  • Lower interest rates

  • Lower monthly payments

Higher LTV (e.g. 85%-95%)

  • Fewer deals to choose from

  • Higher interest rates

  • Higher repayments on your mortgage

What is a High Loan-to-Value Mortgage?

A high loan-to-value mortgage is when you borrow a large percentage of the property value, usually 90% or 95%. This typically means you have a small deposit, such as:

  • 5% deposit = 95% LTV

  • 10% deposit = 90% LTV

High LTV mortgages can help you buy a house sooner, especially if saving for a large deposit is difficult. But you should consider that interest rates and monthly payments may be higher, and mortgage lenders will usually have stricter criteria.

How Your Deposit Affects Your LTV

The size of your deposit has a direct impact on your loan-to-value, and just a small increase can make a noticeable difference to your mortgage options. Even moving from a 95% to 90% LTV mortgage could improve your chances of approval and reduce your overall costs.

Deposit

LTV

What it could mean

5%

95%

Limited mortgage lenders, higher interest rates, and higher monthly payments

10%

90%

More options than 95% LTV, but still higher rates compared to lower LTVs

20%

80%

Access to more competitive deals and better interest rates

40%

60%

Lower risk to lenders, wider choice of mortgages, and lower repayments

Can You Improve Your Loan-to-Value?

There are a few ways to improve your mortgage loan-to-value over time. Lowering your LTV could help you access better deals and reduce your overall total cost of credit.

  • Save a larger deposit before applying

  • Look at properties with a lower house price

  • Overpay your mortgage (if allowed)

  • Wait for your property value to increase

Check Your Credit Standing Before You Apply

If you’re planning on buying a home, it’s a good idea to understand your financial position before applying. With CreditKnowledge, you can check your credit report for free, see what mortgage lenders may look at, and get insights to help you prepare for your application.

Sign up today and take the first step towards getting on the property ladder

CreditKnowledge is a credit broker, not a lender.

Editorial Disclaimer: This content is for entertainment purposes only. Opinions expressed here are the author’s alone, and not those of any bank, credit card issuer, or any other company. This article has not been reviewed, approved, or otherwise endorsed by any of these organisations. NB: The information on this page does not constitute financial advice, please do your own research to ensure that the product/service is right for your individual circumstances.