Loan to Value (LTV)
Loan to Value is the size of a secured loan or mortgage expressed as a percentage of the property's value. A lower LTV means a larger deposit or more equity, which usually means access to cheaper rates.
You buy a £200,000 home with a £40,000 deposit and a £160,000 mortgage. Your LTV is 80%. If you put down £100,000 instead, your LTV is 50%.
- LTV is calculated against the property's value, not just the purchase price. Lenders use their own valuation.
- Lower LTV does not always mean a smaller debt overall. A bigger deposit reduces LTV, but the loan term and interest rate also matter.
- Remortgaging or releasing equity changes your LTV. Borrowing more against the same property pushes LTV up.
Why it matters
LTV is one of the main signals lenders use to price a mortgage or secured loan. Lower LTV is less risky for the lender because there is more equity cushioning the loan if property prices fall or the borrower defaults. That lower risk is usually passed on as a lower interest rate.
LTV bands tend to step at 60%, 75%, 80%, 85%, 90% and 95%, with the best rates usually at the lowest LTVs.
Common confusion
People sometimes assume that putting down a bigger deposit always saves money long-term. It often does, but not automatically. A bigger deposit reduces LTV and may unlock a lower rate, but the total cost depends on the loan amount, term and interest rate combined. Run the maths on total amount repayable, not just the headline rate.
Another confusion is around property valuations. Your asking price or what you paid is not always the lender’s valuation. Lenders do their own valuation and use that figure to calculate LTV. If the lender values the property lower than the agreed price, your LTV is higher than expected.
Equity release products and second-charge secured loans can push LTV up significantly. Borrowing more against the same home moves you into a higher LTV band, sometimes into rates that are markedly more expensive.