Get Your Best Mortgage Deal, Completely Fee-Free!

What Is a Mortgage Loan to Value Ratio?

We explain what Loan-To-Value means and why it matters to your mortgage. Speak to our free mortgage experts.

Unlock savings on your mortgage with a better understanding of your Loan-To-Value (LTV) ratio. At YesCanDo, we demystify mortgages, offering you expert guidance and fee-free advice to optimise your LTV for the best deals. Dive into our insights on improving your LTV and enjoy significant savings, without the hassle of paperwork. Get in touch for tailored, cost-free advice on making the most of your mortgage opportunities.

Mortgages and Their Loan to Value Ratio
    Add a header to begin generating the table of contents

    What Is A Loan To Value Mortgage?

    When you take out a loan, the mortgage lender will refer to the ratio, also known as the ‘loan to value.’

    A loan-to-value (LTV) mortgage is the loan’s size relative to the property’s total value. In mortgage terms, it is always expressed as a percentage and is referred to as the LTV ratio.

    So, if you were looking to buy a home worth £200,000 and borrowed £180,000, the LTV would be 90%. This is because you would borrow 90% of the property’s value. You would then deposit the remaining 20,000 (10%). In this instance, your mortgage would be a 90% LTV mortgage.

    Why Morgage Lenders Care About Your LTV Ratio

    The loan-to-value ratio is what lenders use to determine the level of risk they are taking when giving somebody a secured loan.

    So, if you could only afford to put down a small percentage of the property upfront, you wouldn’t be considered as safe a bet as somebody who could put down more. This would affect the interest rate the banks and building societies charge you.

    For example, you would be charged more interest for a 90% LTV mortgage than an 80% LTV, as this would offset some of the losses the bank or building society might make if the property’s value went down and you didn’t keep up your repayments.

    If you could put down a higher deposit, you would be eligible for a lower LTV mortgage. For these loans, you would usually be given a preferential interest rate as you would pose a lower level of risk to the mortgage lender.

    loan to value ratio

    How To Calculate Loan To Value Ratio

    To calculate LTV, you simply need to take the amount you need to borrow, divide it by the property value and multiply the result by 100 to get the percentage value.

    What does 80% LTV mean?

    So for our real-life example, let’s take the calculation above and relate it to an 80% Loan-to-value mortgage.

    If the property value was £300,000 and you had £60,000 to use as a deposit, you would need a loan of £240,000. To calculate the LTV, you would work it out as follows:

    240,000 ÷ 300,000 x 100 = 80

    In short, you would be eligible for an 80% LTV. In other words, the bank would be willing to lend you 80% of the purchase price of the home. The remaining 20% would be paid yourself as a deposit towards your property purchase.

    Ready for Personalised Mortgage Advice?
    Reach out for 100% FREE expert mortgage advice. Our team is here to guide you to the mortgage that's just right for your financial needs. Contact us today!

    What Is A Good Loan To Value Ratio?

    Generally speaking, a good loan to value ratio is 80%. This is because a lender usually expects the borrower to put down at least 20% of the home’s value as a down payment. You can expect lower interest charges with this LTV ratio than a 90% or a 95% loan-to-value ratio.

    Of course, if you could pay more than 20% upfront, you would benefit from lower interest payments on your mortgage balance. This is because you would be eligible for a mortgage at a lower value LTV ratio, such as a 60% LTV, if you could put down 40% of the property value.

    Not only would you qualify for a better mortgage rate if you had a lower LTV, but you would also have a wider choice of mortgages. This is because banks and building societies consider you less likely to default on your mortgage than somebody who wants to put down a smaller deposit. So, if your LTV were 75%, you would qualify for a wider range of deals at lower rates and products than somebody with a 90% LTV, for example.

    Wondering what the loan to value would be for a second mortgage?

    Mortgage lenders will often price their mortgages in LTV bands.

    Typically, a higher LTV ratio leads to a higher interest rate the bank or building society charges the buyer. Conversely, the buyer will incur a lower mortgage rate if the mortgage ratio is low LTV band.

    This might seem unfair for somebody unable to make a larger deposit, but, as we suggested earlier, it is to offset the risk to the bank or building society.

    Should house prices fall, the risk is that the property value will be less than the amount of the outstanding mortgage and fall into negative equity.

    If the lender needed to recover mortgage debt by selling the property, they would lose more money on a mortgage with a higher loan-to-value ratio. For example, a house with a 90% LTV ratio mortgage would only need a 10% drop in the house price before it went into negative equity. Higher interest is charged to minimise the lender’s financial risk.

    Strategies for Reducing Your Loan to Value Ratio

    Below are three of the most common ways to reduce your loan-to-value ratio, which can potentially help you secure a better mortgage deal.

    1) Increasing Your Deposit

    Boosting your deposit is one of the simplest ways to reduce your loan-to-value (LTV) ratio. A bigger deposit means borrowing less than the property’s price, so it should improve your LTV. Here are many ways to build up a larger deposit:

    • Savings: Put aside some of your income in savings earmarked for buying a home. High-interest savings accounts or fixed-term deposits can help you quickly grow those funds.

    • Gifts from family: Relatives may be prepared to help you out by contributing to your deposit as a gift. Document any such gifts carefully – you’ll need that information when applying for a mortgage.

    • Government schemes: Find out if there are any government schemes available in your country that could help boost your purchasing power, such as Help to Buy or shared-ownership schemes.

    2) Buying a Fixer-Upper

    If you want to lower your LTV ratio substantially, consider buying a property that isn’t quite in tip-top shape. Properties that require a lot of renovations typically have much lower price tags than fully furnished ones, which means part of your budget can go toward necessary changes rather than the cost of the building itself. By doing this, you’ll not only kill two birds with one stone and reduce your LTV ratio but also might increase the property’s value post-renovation.

    3) Negotiating a Better Purchase Price

    You’d be surprised how much sellers are willing to lower their asking price if you just ask. This home is probably the most expensive thing you will ever pay for… so take it seriously! Research pricing as much as you can and learn where there may be issues with the property so you can use them as leverage during negotiations.

    The bottom line here is pretty clear: don’t overextend yourself financially. With a lower LTV, you would have less interest to pay and potentially owe money for less time overall. Saving up more money in advance for a higher deposit or purchasing a cheaper property is often better than paying the minimum amount required and risking monthly payments that could cause financial strain on your lifestyle.

    Are High Loan To Value Mortgages Possible?

    You may be eligible for a high LTV mortgage if you can’t afford a higher deposit. As we discussed, these aren’t always ideal. But if you’re in a hurry to get on the property ladder and can’t afford to pay more upfront, you should find a lender willing to offer you a 95% or 90% mortgage deal.

    In the past, lenders offered homebuyers higher LTV mortgages, with LTV ratios of 100% and 125%. These are no longer available as banks and building societies consider them too high a risk, but many banks or building societies still offer the high LTV mortgages below.

    95% mortgages

    With a 95% LTV mortgage, you can borrow 95% of the value of your home. This means you only need to put down a 5% deposit.

    During the recent pandemic, banks and building societies were quite cautious about offering deals above 90%. This is why people have struggled to get such a mortgage over the last few years. However, the government launched the mortgage guarantee scheme in April 2021. This has given lenders more confidence to offer 95% mortgages again, as any losses they stand to make should a borrower fall behind on their repayments will partially be covered by the scheme.

    While a mortgage with this high LTV ratio can be attractive to homebuyers because of the smaller deposit amount, it is still important to remember the downsides.

    The interest rate will be higher, and consequently, so will the monthly repayments. There is also the risk of negative equity if the property price decreases. As mentioned, this is when the mortgage amount becomes more significant than the property’s value. Problems might then occur if you want to sell the property or remortgage.

    While we don’t want to sway you from getting a 95% mortgage deal if that is what you can afford, we do need to remind you of the risks.

    If you think this type of mortgage deal is best for you, talk to our team of mortgage advisers today for advice and insights on who can offer this higher LTV ratio.

    90% mortgages

    With a 90% loan-to-value mortgage, you can secure a property with a 10% deposit. So, if you were to buy a property worth £200,000, you would need to cover the remaining £20,000 with your savings.

    A 90% mortgage is attractive to those looking to get on the property ladder and is better value than a 95% mortgage. However, there is still the possibility of higher interest rates than a mortgage deal with a lower LTV ratio, as well as the other risks that can also be associated with a 95% mortgage. Talk to us today to find out what mortgage rates and products might be available to you.

    Did you know there are such things as 100% LTV Mortgages, meaning you’ll have to pay little to no deposit?

    Remortgaging to Improve Loan To Value

    Refinancing your mortgage (a remortgage) can be a strategic move to take advantage of a better LTV ratio, significantly if your property’s value has increased or you’ve paid a significant portion of your mortgage. Here’s how it works:

    • A Higher Home Value: If your property is worth more than you bought it, you own a more significant share and can adjust payments accordingly.

    • Less Money Owed: Every payment you’ve made so far has reduced the amount you owe. That, too, should improve your loan-to-value ratio and help you qualify for a better rate.

    Steps to Remortgage with a Lower LTV

    1. Check Your Property Valuation: Use a website like MousePrice, get an agent to come out, or compare sales figures of similar homes nearby. You want to make sure lenders see the higher value of your investment.

    2. Review Existing Mortgage: Go over your current deal with a fine-tooth comb. Are there early repayment penalties? Will there be closing costs if you remortgage early?

    3. Start Shopping around: Search on comparison sites and consult with mortgage lenders or mortgage brokers to explore your remortgage options. Rates change daily, so staying informed can help you secure the best terms.

    4. Apply for a Remortgage: Once you find a good offer, apply before interest rates increase. They are currently at historic lows but are expected to rise in the coming months and years.

    5. Consider Costs vs. Profits: There will be fees involved, such as application fees, appraisal fees, and closing costs. Make sure all those extra expenses don’t negate potential savings from lower interest charges.

    By being aware of these financial tools and crunching some math yourself, you could save thousands on long-term deals while also lowering monthly payments significantly.

    Buy To Let Mortgage Loan To Value

    If you’re looking to buy a property to let out, the highest LTV you can expect is 75% Loan To Value Mortgages, subject to criteria. A few banks and building societies offer 80% LTV mortgages; however, the products on these loans will be higher.

    Banks and building societies consider buy-to-let properties slightly higher risk. This is because the borrower’s ability to repay is sometimes dependent on the income they bring in from tenants. Should the property remain empty, the borrower might struggle to keep up with their repayment plan. Lenders will consider this anyway.

    Check out our guide on buy-to-let mortgages and get in touch with us for advice on the mortgage deals available to you.

    Frequently Asked Mortgage Questions

    Credit scores are a key ingredient in how much you can borrow. A bad credit score will affect the mortgage deals you are offered, but that doesn’t mean getting a mortgage will be impossible.

    If you don’t have a good credit score, you will have more success getting a mortgage if you can put down a larger deposit for a low LTV. This minimises the bank’s risk factor.

    If you have loans or a credit card or two, paying these off or reducing the outstanding amount can improve your credit score. The better your credit score and LTV ratio, the better the mortgage rates and products on your repayment mortgage loan.

    Getting a high LTV with a bad credit score can still be possible, but through specialist lenders rather than the mainstream banks and building societies you will usually find on your high street.

    At YesCanDo Money mortgage brokers, we have access to specialist lenders that offer mortgage deals to people with bad credit scores.

    Yes! With a 70% LTV, it is seen as lower risk by the mortgage providers, and you will have a wide range of competitive interest rate options to choose from. This is at the lower end of LTV bands so is less of a risk for lenders. Consequently, you will have less monthly interest to pay as a deposit of 30% will be rewarded by the bank or building society.

    It used to be a good way to calculate how much you could borrow. It is deffinitly possible to borrow 4.5 times the salary of all mortgage applicants. This would be more likely if you have no to little debt and an  average or higher than avergage UK salary.

    Scroll to Top
    This website uses cookies to improve your experience. If you continue we’ll assume you’re happy. See our privacy policy for more information.