LTV - Loan-to-Value Mortgages Explained
Written on 30 August 2022 by
What Is LTV?
LTV, or loan-to-value, is the ratio between the amount borrowed for your mortgage and the value of the property. This ratio is expressed as a percentage. Calculate your mortgage LTV via our free online calculator.
When you get a mortgage or remortgage, your lender will arrange a physical or desktop valuation of your home, which will determine how much the property is worth. A percentage of the value of the property will be the amount of the funds that you're actually borrowing from the lender, the rest will be the deposit or equity you’ve built up in your property.
When remortgaging your home, you’ll be charged an interest rate and APR based on the LTV you borrow against. Better credit and a low LTV attract lower interest rates.
LTV Mortgage Meaning and Why It’s Important
Mortgage lenders use LTV, among several other factors, to determine whether to approve or deny a loan. A high LTV mortgage refers to one where the amount of money borrowed makes up most of the purchase price of the property. For example, a loan of £90,000 on a home purchased £100,000 has an LTV of 90% and a deposit of 10%. A low LTV mortgage refers to a mortgage where the deposit provided is much more substantial – e.g. a loan of £60,000 on a home purchased for £100,000 has an LTV of 60% and a deposit of 40%.
Borrowers with high LTVs are seen by lenders as riskier than those with a higher deposit – learn more in our comprehensive mortgage deposit guide. Borrowers with little investment have less to lose if they default on the loan than those who have made a larger down payment – and lenders with more invested in the property put themselves at risk of not reclaiming the money in the event of repossession.
What Can Affect Your LTV Mortgage?
The Amount You Pay Towards Your Home
if you've already owned property and sold it to buy your new home, you would be able to use the proceeds to pay for a portion of new home, reducing the amount you need to borrow from the lender.
However, if you’re a first-time buyer, you’ll rely solely on your deposit – which can be hard to save. So you may have to borrow a higher percentage of the home's value from the lender.
The Level of Risk
To determine the risks associated with any lending you apply for, mortgage providers perform a variety of calculations and checks. One of the factors they consider is the LTV because the bigger the percentage of the property’s value you borrow, the greater the risk for the lender that they could lose money in the event of repossession. The highest LTV most lenders will offer you on a mortgage is 95%.
A higher LTV may affect the mortgage or remortgage deals the lender is willing to offer you, and you may find that a higher LTV leads to higher interest rates and less favourable terms in general.
Lenders may also take extra steps during the mortgaging or remortgaging process when there is a high LTV so that they can better protect their own interests, such as assessing more documents – e.g. 3 payslips rather than 1.
Our How Much Can I Borrow? calculator or remortgage calculator will help you work out how much you could potentially borrow on a new mortgage. You can then use our LTV calculator to work out how much your maximum borrowing amount compares to your deposit – or equity.
If you need advice or want to know more about applying for a remortgage, speak to one of our experienced advisers at John Charcol.
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