What is LTV (Loan To Value)

Updated: Oct 24, 2021

What is LTV?

Loan to value is the proportion of your home's worth to that which you owe.

For example, a £180,000 mortgage on a £200,000 property equals a 90% loan to value ratio.


How do you calculate LTV?

The loan-to-value ratio (LTV) compares the amount borrowed as a mortgage to the deposit paid. Loan to value works like this:

You put down £20,000 on a £200,000 home.

You take up a £180,000 mortgage to cover the gap.

Your deposit is 10% (£20,000) of the purchase price (£200,000).

So your LTV is 90%.


Why should I know my LTV?

The higher the deposit, the lower the LTV, this is a good thing because it means you dont have to borrow as much money and the lender is happy because its less risky for them if you dont pay your mortgage, they will be able to get their money back.

Lenders usually give better rates with a lower LTV.


Equity and LTV

A lower LTV ratio means greater equity in a property. A home's value may vary. Negative equity occurs when the value of your home is less than your mortgage balance. When you have low/negative equity it may be harder to sell or re-mortgage.


Risks vs Gains

Lenders will be delighted if you already have significant equity (eg deposit) to invest in a new home or want to stay in your present one. The risk of not being able to recoup your loan by selling your property is lower so lenders offer better rates.

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