LTV — Loan-to-Value Ratio

What is Loan-to-Value?

Loan-to-Value (LTV) is the ratio between the size of your mortgage and the value of the property you are buying or remortgaging, expressed as a percentage. If you buy a property worth £250,000 with a £50,000 deposit, your mortgage would be £200,000, giving you an LTV of 80%.

The formula is straightforward: (Mortgage Amount / Property Value) x 100 = LTV%

Why LTV matters

LTV is one of the most important factors lenders use to determine what mortgage deals you can access and what interest rate you will pay. Lower LTV ratios mean less risk for the lender, so you are rewarded with better rates.

UK mortgage rates are typically tiered in LTV bands: 60%, 75%, 80%, 85%, 90%, and 95%. The difference between a 90% LTV rate and a 60% LTV rate can be significant, sometimes 0.5% to 1.0% or more, which translates to hundreds of pounds per month on a large mortgage.

Typical values in the UK market

• 95% LTV -- the maximum most mainstream lenders offer, requiring just a 5% deposit. Common for first-time buyers using schemes like the mortgage guarantee scheme.
• 90% LTV -- a popular bracket for first-time buyers, with noticeably better rates than 95%.
• 75% LTV -- a common target for remortgagers who have built up equity over time.
• 60% LTV or below -- typically unlocks the very best interest rates available.

Important caveats

Your LTV can change over time as you pay down your mortgage and as your property value fluctuates. If house prices fall, your LTV could rise, potentially pushing you into negative equity where you owe more than the property is worth. Conversely, rising property values and regular repayments reduce your LTV, which can open up better deals when you come to remortgage.

Making overpayments is one practical way to reduce your LTV faster and access cheaper rates at your next remortgage date.