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What is loan to value?
Loan to value (LTV) is the percentage of borrowing you take out against your home.
How do you work out your LTV ratio?
Loan to value ratio, or LTV, is the ratio of what you borrow as a mortgage against how much you pay as a deposit.
Here’s how loan to value ratio works:
- You pay a deposit of £20,000 for a property worth £200,000.
- You get a mortgage of £180,000 to pay for the rest.
- Your deposit covers 10% of the house price.
- So, your LTV is 90%.
Why do I need to know my LTV?
Lenders look at your LTV when deciding if they’ll accept your mortgage application.
A low LTV can mean less risk for the lender so the lower your LTV the better.
Not only will this support your mortgage application, but it will also help you get a lower mortgage rate.
Your LTV will be reviewed whenever you remortgage, or if you’re a first time buyer.
What's a good LTV?
Most lenders consider anything under 80% to be a good LTV ratio but will vary by lender.
While it’s sometimes possible to borrow extra, anything above 80% tends to cost more.
If you can, increase your deposit to lower your LTV.
Benefits of a lower LTV
Lenders will be happier if you’ve already got a decent amount of equity in your home.
They see this as being a lower risk due to the property value being greater than the value of the mortgage.
Risk of a higher LTV
A loan to value ratio that is high, or stays the same over time may mean higher interest rates.
How do you calculate mortgage equity?
Equity is how much of your home you ‘own’.
Mortgage equity is the difference between what you owe on your mortgage and the current value of your property.
Improving your loan to value ratio
The best way to improve your loan to value ratio is to increase the amount of equity, so you don’t need to borrow as much.
You can do this by:
- Saving more towards your deposit.
- Pushing for a lower price on a new home than the seller is asking.
- Adding value to your current home by making home improvements.
- Overpaying your mortgage – either as a one-off payment, up to 10% on a fixed interest rate or higher on a variable rate per year, or as a regular overpayment. Please check your mortgage terms and conditions to see how much overpayment you can make without occurring an early repayment charge (ERC).
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You could lose your home if you don’t keep up your mortgage repayments
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