What is Loan to Value (LTV)? How It Affects Your Mortgage Rate

What Loan to Value Means

Loan to value (LTV) is the percentage of a property's value that you are borrowing from a lender. It is one of the most important figures in any mortgage assessment.

The formula is: LTV (%) = (Mortgage amount ÷ Property value) × 100

If you are buying a property for £300,000 with a £30,000 deposit (10%), your mortgage would be £270,000, giving an LTV of 90%. If your deposit were £60,000 (20%), your LTV would be 80%.

Why LTV Matters to Lenders

LTV is a measure of lending risk. The lower the LTV, the more equity the borrower has relative to the property value, and the less likely the lender is to suffer a loss if the borrower defaults. Lenders price this risk directly into their mortgage rates.

LTV Tiers and Typical Rate Bands

Moving from one tier to a lower one can unlock meaningfully better rates. The difference between a 90% and 75% LTV product can be one percentage point or more, which compounds significantly over a 25-year term.

How LTV is Calculated in Practice

The property value used for LTV purposes is the lower of the agreed purchase price and the lender's mortgage valuation figure. If a surveyor values the property below the agreed purchase price, the lender calculates LTV on the lower figure, meaning your effective LTV increases and you may need to contribute additional cash.

Improving Your LTV

There are two ways to reduce your LTV: increase your deposit or purchase a lower-priced property. Saving an additional 5% deposit, moving from 90% to 85% LTV, can unlock a materially better rate.

LTV at Remortgage

LTV is recalculated at remortgage using the current estimated market value of the property rather than the original purchase price. If your property has increased in value, your LTV may have fallen significantly, allowing access to better rates. You can search comparable sold prices on Property Passport UK to estimate how your property value may have changed since purchase.