How LTV works

A quick overview

Learn what Loan to Value (LTV) means, how it is calculated, and why it matters when applying for a mortgage. This video explains how your deposit impacts your LTV and the mortgage rates you may be offered.

Transcript

LTV stands for loan to value. It’s the percentage of the home’s value that you borrow as your mortgage.

Let’s say, the property you want to buy is £200,000 and you have £20,000 as your deposit. That £20,000 is 10% deposit of the total cost of the home.

You’d need to borrow £180,000 as your mortgage. Because £180,000 is 90% of £200,000, your loan to value would be 90%.

Typically, lenders expect you to have at least a 5% deposit to be willing to lend you a mortgage. 

So why is this important?

Mortgage providers tend to offer lower interest rates for mortgages that have a lower loan to value.

For example, you’d probably find that a 90% LTV mortgage has a higher interest rate than an 85% LTV mortgage with the same lender.

This basically means the bigger your deposit, the more likely you are to be able to apply for good mortgage deals.

How is LTV worked out?

So if you have a 9% deposit, you’d be able to apply for 95% LTV mortgages. You’d need to have a full 10% deposit to be able to apply for a 90% LTV mortgage.

Let’s take our example from earlier.

You still want to buy that same £200,000 house, but this time you have a £19,000 deposit.

In this case, any mortgage offers you get from lenders would be for a 95% LTV mortgage. 

But – if you saved an extra £1,000, you’d have a £20,000 deposit. As your deposit is now 10% of the total value of the home, you’d qualify for 90% LTV mortgages, likely with a better interest rate.

LTV can be complicated but if you have any questions our mortgage advisors can always help provide more explanation in relation to your personal circumstances.

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