LTV explained

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 is an LTV?

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.

If you’re buying to let though, you’ll have to put down a bigger deposit. Lenders usually expect a minimum 25% deposit on a buy to let property, or sometimes as much as 40%. So the maximum LTV can be anywhere between 75% and 60%.

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.

Finding your best deal

You can lower your LTV in a number of ways. The most straightforward way is to either chip in a bigger deposit or buy a cheaper property. Depending on where you sit on the property ladder, however, there are other steps you can take

 

  1. If you’re a first time buyer, there is help available from the government in the form of the Help to Buy scheme. There are advantages and disadvantages to the scheme, which you can find here along with information on eligibility.

 

  1. If you already have a mortgage, you could consider remortgaging to take advantage of a lower LTV ratio if your property’s value rises – your debt is assessed again, but this time in relation to the current worth of the property.

 

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.

Other articles you may find useful

Can I afford to get on the property ladder?

Fixed rate mortgages explained

Variable rate mortgages explained