LTV meaning

Stuart Bowman

3-minute read

Last updated: 4th August 2020

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LTV is one of the many pieces of jargon you’ll come across when you’re looking at getting a mortgage. It stands for Loan-to-Value and it’s a lot simpler than it sounds.

In this guide we’ll explain what LTV is, how it works and what it means for you if you’re getting a mortgage.

What does LTV mean?

LTV is the percentage of a property’s value you borrow after chipping in your deposit.

For example, you could be eyeing up an apartment worth £160,000. You put down £40,000 (25% of the property value) for a deposit. You then need a mortgage for the remaining £120,000 (75% of the property value). This gives you an LTV of 75%.

The lower your LTV, the lower your monthly mortgage repayments are likely to be.

What’s the maximum LTV you can get?

Lenders generally ask for at least a 5% deposit, so the maximum LTV is typically 95%. 100% LTV mortgages do exist, but they’re hard to come by and have strings attached.

Your mortgage broker must declare how much, if anything, they’ll earn from the lender. Brokers are regulated by the Financial Conduct Authority (FCA), so they shouldn’t let the amount of commission they can earn affect their advice to you. It could cost them their licence, after all.

How does LTV affect interest?

Bigger loans carry more risk. It’s understandable: the lender is putting more cash into the purchase than you and wants to know they’ll be paid back.

Interest rates tend to be lowest when you reach 60% LTV. This goes for fixed rate, tracker and variable rate mortgages.

As a hypothetical example, your opening fixed rate on a 60% LTV mortgage could be around 1.2% interest, eventually rising to 3.8% when the term ends and you’re moved on to a Standard Variable Rate (SVR).

As you scale to the 70-80% LTV level, you’ll be paying more interest. The fixed rate might be more like 1.59% before it moves up to a 4.7% SVR. It’ll be different from lender to lender. Of course, 90-100% LTVs come with the highest rates.

Using LTV to find your best mortgage rate?

Our Mortgage Matcher can show you what your monthly repayments could look like at various LTVs. Try entering different deposit amounts and property values to see what could be available to you. Click here and choose ‘new mortgage’ or ‘remortgage’ to begin.

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