Loan to value, or LTV, is the size of your mortgage expressed as a percentage of the property’s value. It is one of the most important figures in mortgage lending because it represents the level of risk the lender is taking. A higher LTV means the lender is funding a larger share of the purchase, which is riskier for them if property prices fall.
LTV is calculated by dividing the mortgage amount by the property value and multiplying by 100. For example, if you buy a £300,000 property with a £60,000 deposit, you need a £240,000 mortgage, giving an LTV of 80%. The remaining 20% is your equity (or deposit, for a purchase).
LTV directly affects the interest rates available to you. Lenders offer their best rates at lower LTVs — typically 60% or below — and rates increase at higher LTV bands (75%, 80%, 85%, 90%, 95%). Each time you cross into a lower LTV band, you unlock better deals. This is why building equity through repayments or property price growth can improve your options when you remortgage.
You buy a property for £250,000 with a £25,000 deposit. Your mortgage is £225,000, giving an LTV of 90% (£225,000 ÷ £250,000 × 100). At 90% LTV you might pay 5.2%. After a few years, your balance drops to £210,000 and the property is worth £270,000, giving an LTV of 78%. At this lower LTV, you could remortgage at around 4.3%, saving over £100 per month.
Key Points
- LTV is your mortgage amount divided by the property value, expressed as a percentage
- Lower LTV means lower risk for the lender, which unlocks better interest rates
- LTV bands (60%, 75%, 80%, 85%, 90%, 95%) determine the rate tiers available to you
- Your LTV improves over time as you repay the mortgage and if the property increases in value
- Most lenders require a minimum 5% deposit (95% LTV), though better rates start at 80% LTV and below