What is loan-to-value (LTV)?
Your mortgage is a secured loan that is secured against the property that you purchase and the property acts as the guarantee for the mortgage loan in case you fail to repay it.
The higher the LTV, the higher the lender’s risk as it will foot a significant portion of the cost of the property. This increased risk exists because, in a situation where you are unable to keep up with your mortgage repayments, the lender may have to sell the property to recoup the mortgage loan. A higher LTV could mean that the lender is unable to recover the entire mortgage loan amount, especially if there is a sudden fall in property prices.
If house prices fall to a point where the property is worth less than the mortgage secured against it, the property would be in 'negative equity'. This is where you owe more on your mortgage than can be raised through the sale of the property.
The more money you put towards the cost of property in the form of a deposit, the lower the LTV will be and that represents less risk for the lender.
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How do I calculate loan-to-value (LTV)?
You can calculate the loan-to-value (LTV) by simply dividing the amount of the mortgage loan by the property value and then multiplying the answer by 100. So, if your property purchase price is £350,000 and you have a deposit of £35,000 then the mortgage loan that you will need is £315,000. You can calculate the LTV by dividing £315,000 by £350,000 which gives you 0.9 and then multiply this by 100 to give you 90% - your LTV will be 90%.
What does LTV mean for your mortgage?
Homebuyers usually aim to apply for a mortgage using the lowest LTV possible as this will mean that you can attract the best mortgage deals and lowest interest rates available.
Most mortgage lenders offer mortgages with LTV ranges between 60% and 95%, with the most competitive mortgage deals offered at 60% LTV (and the most expensive at 95% LTV).
Your mortgage loan-to-value ratio can be as high as 100% where you borrow all of the money needed to meet the full cost of the property, but this is not very common. If you have a low deposit amount with a higher LTV ratio or are looking to make use of a government scheme or guarantor help, you should speak to the specialist mortgage broker, Tembo*. Tembo's advisers are specially trained to provide bespoke mortgage guidance to help you get a mortgage with little to no deposit.
Which LTV is best?
60% LTV mortgage deals usually offer the most competitive rates, so this is often seen as the 'best' LTV ratio to aim for as a borrower. On the other hand, a high LTV ratio with up to 95% LTV attracts the most expensive mortgage deals, with higher interest rates due to the higher risk. If your LTV is lower than 60%, you'll typically find deals that are on par with those offered for 60% LTV mortgages.
Below, we have listed the best mortgage interest rates available for a range of LTVs based on a £350,000 property price with a repayment mortgage over a term of 25 years. You can search for mortgage deals based on your specific mortgage needs using our mortgage rate comparison tool.
How LTV affects your mortgage interest rate
| LTV | Best 2-year fixed rate | Best 5-year fixed rate |
| 60% | 4.75% | 4.33% |
| 70% | 4.83% | 4.44% |
| 80% | 4.99% | 4.62% |
| 90% | 5.19% | 4.71% |
| 95% | 5.39% | 4.99% |
Figures correct as of 3rd June 2024 and based on a repayment mortgage arranged over 25 years to purchase a property valued at £350,000
If you know the LTV for the mortgage that you need, you can find the best mortgage deals via our articles below.
- Which are the best 60% LTV mortgages - and can I get one?
- Which are the best 80% LTV mortgages?
- Is a 90% LTV mortgage right for you? How to find the best deals
- Which are the best 95% LTV mortgages – and should I get one?
How to lower your LTV to secure a better mortgage deal
Reducing your LTV not only gives you access to better mortgage deals but it also means that you have more equity in the property that you buy. Most mortgage lenders will offer deals based on LTV bands, meaning you may only have to reduce your LTV by a few percent to move it into a lower band.
Your LTV can be lowered by:
- Saving a larger deposit amount - you may choose to spend more time saving for a larger deposit towards your property purchase or get help from friends and family. This could help you secure a better mortgage rate which, in turn, could save you money over the mortgage term
- Negotiating a lower price for the property you wish to purchase - getting the best deal on the property you wish to purchase is hugely valuable in not only saving you money on the purchase but also on the better interest rate you can secure on your mortgage as a result. Working out the LTV that you desire can help you set the maximum price you are willing to pay for the property.
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