What is loan to value ratio and how do I calculate it?

• Loan to value (LTV) is the percentage of your property’s value that you’re borrowing calculated by dividing your mortgage amount by the property value.
• The lower your LTV, the better mortgage rates you’ll access – lenders offer their best deals to borrowers with 60% LTV or below.
• For remortgaging, your LTV is based on your current mortgage balance against your property’s current market value.
• You can improve your LTV by saving a larger deposit, overpaying your mortgage, or increasing your property’s value through renovations.

Loan to value ratio (LTV) is the percentage of your property’s value that you’re borrowing as a mortgage. It’s one of the most important factors lenders consider when deciding whether to approve your mortgage and what interest rate to offer you.

For example, say you’re buying a house worth £300,000, you have a deposit of £30,000 and need to borrow the remaining £270,000 from your chosen lender. Your deposit covers 10% of the house price. The remaining 90% is your loan to value.

LTV ratio helps lenders assess the risk of lending to you. The lower your LTV ratio, the less risky you appear to lenders, which typically means access to better mortgage rates and more product options.

If you’re remortgaging, your LTV is calculated using your current outstanding mortgage balance against your property’s current market value, not what you originally paid for it.

Let’s look at an example, if your home is now worth £350,000 and you still owe £175,000 on your mortgage, your LTV would be 50%. This is often much better than when you first bought, thanks to paying down your mortgage and potential property price increases.

Learn more: Why should I remortgage?

Calculating your loan to value ratio is pretty straightforward, you just need two numbers: your mortgage amount and your property’s current value.

Here’s the simple formula: LTV = (mortgage amount ÷ property value) x 100

For a purchase: Divide your mortgage amount by the property’s purchase price. So, if you’re borrowing £240,000 on a £300,000: (240,000 ÷ £300,000) x 100 = 80% LTV.

For remortgaging: Use your current outstanding mortgage balance and your property’s current market value: If you owe £150,000 on a £250,000 home: (£150,000 ÷ £250,000) x 100 = 60% LTV.

You may need to contact your lender for your outstanding mortgage or get a property valuation to get as close as possible to your true LTV. Your lender will conduct a valuation of your property or the property you’re purchasing when you’re seeking mortgage approval.  

Generally speaking, the lower your LTV ratio the better mortgage deals you’ll have access to. Most lenders offer their best rates to borrowers with an LTV of 60% or below, while anything above 90% is considered higher risk.

Here's how LTV bands typically work:

• 60% and below: Access to the best rates and widest choice of lenders
• 60-75%: Good rates with plenty of options available
• 75-85%: Reasonable rates, though fewer product choices
• 85-90%: Limited options with higher interest rates
• 90-95%: High LTV mortgages with higher rates and stricter criteria

For most buyers, an LTV of 75% or lower puts you in a strong position. This means having at least a 25% deposit when buying, or 25% equity when remortgaging. However, what's "good" also depends on your personal circumstances - a 90% LTV might be perfectly acceptable if it helps you get on the property ladder sooner.

Learn more: How much deposit do I need?

Your mortgage LTV ratio directly affects the interest rates you’ll pay, and which mortgage products are available to you.

A lower LTV means you have more equity (the value you own) in your property, making you less risky for lenders as they’re loaning a smaller portion of the property’s value. The less they lend relative to what the property is worth, the better rates they're willing to offer.

Improving your LTV over time will significantly impact your options when moving home or remortgaging. As your equity increases, your LTV improves.

1. Save up a larger deposit

Saving up for a larger deposit before purchasing is one way to improve your LTV ratio. Although this will delay your purchase, a bigger deposit means a lower LTV, which means more manageable monthly mortgage payments and lower interest rates.

2. Keep paying off your mortgage

Despite this being obvious, it’s one of the easiest ways to improve your LTV ratio. As you keep up with your monthly payments, you own more of your home.

As your equity grows, your LTV improves over time.

3. Overpaying your mortgage

If you want to improve your LTV a little quicker, you could take advantage of overpaying on your mortgage.

Even small additional payments can make a meaningful difference over time – an extra £100 a month could improve your LTV by several percentage points within a few years, depending on your mortgage size.

Just be aware of your early repayment charges, most lenders allow 10% annual overpayments without penalty, but always check your mortgage terms.

4. Improve your home’s value

Improving the value of your home is another way to boost your LTV ratio.

A loft conversion, extension, or significant renovation could increase your home’s value enough to meaningfully improve your LTV ratio when you next remortgage or sell your home when moving.

What happens if my LTV goes above 100%?

If your property value falls below your outstanding mortgage balance, you'll be in negative equity. This means you owe more than your home is worth, which can make remortgaging or selling difficult until property values recover or you pay down more of your mortgage.

How often do lenders reassess my LTV?

Lenders don't routinely reassess your LTV during your mortgage term. They'll only recalculate it when you apply to remortgage, request additional borrowing, or make changes to your mortgage product.

When purchasing, can I use gifted deposits to improve my LTV ratio?

Yes, lenders accept gifted deposits from family members to help reduce your LTV ratio. A gifted deposit is money given to you by close family or friends to help you purchase a property.