If you take out a £200,000 mortgage to buy a £250,000 home, the LTV is 80% – as you’ll need to borrow 80% of the home’s value.
LTV ratio is important because it’s one of the factors lenders consider when deciding:
Different types of mortgages, like fixed rate, tracker, or interest-only mortgages, will offer various rates depending on the loan-to-value brackets. For example, interest rates for a 60% LTV are likely to be lower than a 90% LTV.
In general, the lower the LTV ratio, the lower the interest rate is likely to be. To achieve a lower LTV, you’ll typically need to put down a bigger deposit.
If you only have a small deposit, you’ll need a higher LTV mortgage, which means you’ll be paying back a higher rate of interest in your monthly payments. This is because high LTV loans are seen as more of a risk for mortgage lenders than low LTV loans.
Explore: How to save for a house deposit
Before you begin, it’s important to work out how much home deposit you can afford. To get a mortgage, you’ll typically need to contribute at least 5% of the property price as a deposit.
To calculate the LTV, divide your mortgage amount by the value of the property you want to buy, then multiply that by 100.
Here’s an example:
You want to buy a house costing £300,000.
You have £30,000 in savings for a deposit (10% of the purchase price).
You’ll need a mortgage of £270,000 to cover the difference.
So, £270,000 ÷ £300,000 = 0.9
0.9 x 100 = 90%
A £270,000 mortgage is 90% of the overall property value, so your LTV ratio is 90%.
If you’re looking to remortgage, now is a good time to work out the LTV, especially if you believe it has improved. The value of your house can change over time – maybe you’ve installed a new kitchen or added an extra bedroom.
Your remortgage deal will need to reflect the new LTV.
Look at how much you still owe on your current mortgage. Divide what you still owe by the new value of your house and multiply the number you get by 100. This will give you the LTV ratio as a percentage. The more home equity you have, the lower your LTV will be.
Calculate LTV and discover how much you could borrow with our mortgage calculators.
Remember – it’s important to make sure your mortgage payments are affordable, whatever your LTV.
Your property may be repossessed if you do not keep up repayments on your mortgage.
