Loan-to-value ratio (LTV) shows how much of a property’s value your mortgage covers. Lenders calculate it by comparing the mortgage amount with the purchase price or valuation.
For example, if you buy a £250,000 property with a £25,000 deposit, you would need a £225,000 mortgage. The mortgage covers 90% of the property’s value, giving you a loan-to-value of 90%.
Lenders use the percentage to assess risk and decide which mortgage deals to offer. A lower ratio may give you more options and competitive rates. By contrast, a higher ratio may limit your choice and increase your monthly payments.
What to know about loan-to-value
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A higher percentage means more borrowing
A higher percentage means your mortgage covers more of the property price, while your deposit covers less.
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A larger deposit can lower your ratio
Putting down more money reduces the percentage you need to borrow and may improve your mortgage options.
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Lenders price deals within LTV bands
Mortgage lenders generally structure their product ranges around common LTV bands of 95%, 90%, 85%, 80%, 75% and 60%.
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Your percentage can change over time
Repaying your mortgage can lower the ratio. Changes in the property’s value can also cause it to rise or fall.
Calculate your loan-to-value
How to calculate LTV
To calculate your LTV, divide the mortgage amount by the property value and multiply the result by 100.
Mortgage amount ÷ property value × 100 = LTV
£225,000 ÷ £250,000 × 100 = 90% LTV
The mortgage covers 90% of the property value, while the £25,000 deposit covers the remaining 10%.
How your mortgage deposit affects loan-to-value
The table below shows how different deposit amounts would affect the LTV on a £250,000 property.
Deposit
Mortgage amount
Loan-to-value
£12,500 (5%)
£237,500
95%
£25,000 (10%)
£225,000
90%
£50,000 (20%)
£200,000
80%
£62,500 (25%)
£187,500
75%
If you are remortgaging, use your outstanding mortgage balance and the property’s current value. Your lender will confirm the valuation used.
How loan-to-value affects mortgage rates and deals
A higher percentage means the lender funds a greater share of the purchase price. As a result, a fall in the property’s value creates more risk for the lender.
Mortgages at a higher loan-to-value may come with higher interest rates and a narrower choice of deals. A lower percentage can provide access to more competitive mortgage rates, potentially reducing your monthly payments.
However, the deal and wider market will also influence your mortgage interest rate. The amount borrowed, mortgage term and repayment type will affect your monthly payments.
Why loan-to-value bands matter
Mortgage lenders typically offer deals within LTV bands such as 95%, 90%, 85%, 80%, 75% and 60%. Increasing your deposit or reducing your mortgage balance may move you into a lower band.
For example, moving from 91% to 90% may provide access to deals that were previously not available. However, reaching a particular band does not guarantee approval. Your mortgage application will also depend on affordability, credit history and the property.
What is a good loan-to-value?
Generally, a lower percentage can give you a wider choice of mortgage deals and more competitive rates. The lender faces less risk because it funds a smaller share of the property’s value.
An LTV of 60% or below is often within a lender’s lowest pricing band. However, contributing a larger deposit beyond this point may not always provide a better rate.
These mortgages can help them take their first step onto the property ladder sooner. However, they may pay higher rates and have fewer deals to choose from.
To find the right balance, consider your savings, buying costs and how much money you want to keep available.
How your loan-to-value can change
Changes to your mortgage balance or property value can cause the percentage to rise or fall throughout the mortgage term.
01
Repaying your mortgage
Regular capital repayments reduce the amount you owe.
If the property value remains the same, this will gradually lower the percentage.
02
Changes in property value
If the property increases in value, your ratio may fall.
However, a reduction in value could increase it, even if you have continued making payments.
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Borrowing more
Borrowing more against the property increases your mortgage balance and may raise the percentage.
As a result, you could move into a higher band and have fewer deals to choose from.
When remortgaging, the lender recalculates your loan-to-value using your mortgage balance and current property value. The new percentage helps determine which mortgage deals may be available.
Review your mortgage position
Muttuo’s mortgage brokers can explain how your property value and mortgage balance affect your options.
How to lower your loan-to-value
A lower loan-to-value means borrowing a smaller proportion of the property’s value. Several approaches may help you lower the percentage.
01
Build a larger deposit
Saving more or using additional equity from an existing home reduces the amount you need to borrow.
02
Choose a lower-priced property
The same deposit will represent a larger percentage of a less expensive property, resulting in a lower ratio.
03
Reduce your mortgage balance
Regular repayments gradually lower your balance. You may also be able to make overpayments, although you should check for any limits or early repayment charges.
Moving into a lower band could improve your mortgage options. However, avoid using all your available savings solely to reach it. You may still need money for buying costs, repairs and unexpected expenses.
Does LTV affect how much you can borrow?
A loan-to-value mortgage calculation shows the percentage of a property’s price that a lender may fund. For example, a deal at 90% loan-to-value can cover up to 90% of the price. You would need a deposit of at least 10%.
A large enough deposit does not guarantee that the lender will approve the full loan amount. The lender will also check your income, regular spending and debts to see whether you can manage the monthly payments.
Your credit history, mortgage term and the property will also affect the decision. In short, your deposit affects the percentage you need to borrow. The lender reviews your income, spending and debts to decide how much it may lend.
How Muttuo Mortgages can help
Your loan-to-value is only one part of finding the right mortgage. The available deals will also depend on affordability, credit history and the type of property you want to buy.
Muttuo Mortgages can help you:
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calculate your current or expected LTV
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compare mortgage deals across over 100 lenders
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review your financial position and prepare your mortgage application
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compare applying now with waiting to improve your position
Our mortgage brokers can explain which LTV bands and deals may suit you when buying, moving or remortgaging.
Ready to explore your mortgage options?
Speak to Team Muttuo for help comparing lenders, rates and deposit requirements.
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