Understanding Loan-to-Value Ratio and Why It Matters
Learn what loan-to-value ratio means in UK mortgages, how it affects your interest rate, and strategies to reduce your LTV.
Understanding Loan-to-Value Ratio and Why It Matters
Loan-to-Value (LTV) ratio is one of the most important numbers in mortgage lending. It directly affects the interest rates available to you and your lender's risk appetite.
What Is LTV?
LTV is the proportion of a property's value that is borrowed. A £180,000 mortgage on a £200,000 property has an LTV of 90%. A £150,000 mortgage on the same property has an LTV of 75%.
The Formula
(Mortgage Amount ÷ Property Value) × 100 = LTV%
Why It Matters to Lenders
Higher LTV means more risk for the lender — if you default and house prices fall, they may not recover the full loan amount. Lower LTV means more equity buffer, so they offer better rates.
LTV and Interest Rates
Lenders price their products in LTV bands. The key thresholds are typically:
- 95% LTV — highest rates, limited lenders
- 90% LTV — more competition, improved rates
- 85% LTV — noticeably better rates
- 75% LTV — significant improvement
- 60% LTV — usually the best rates available
How to Reduce Your LTV
- Save a larger deposit before buying
- Make overpayments on your mortgage to build equity faster
- Wait for house price growth to naturally reduce your LTV at remortgage
LTV at Remortgage
When you remortgage, your LTV is based on your outstanding balance and your property's current value. A rising market can move you into a lower LTV band, unlocking better deals without additional savings.
