Glossary · UK

What is Loan-to-Value (LTV) Ratio?

The size of a mortgage expressed as a percentage of the property's value -- a lower LTV (bigger deposit) usually unlocks cheaper interest rates.

Full Definition

Loan-to-Value (LTV) is the amount borrowed on a mortgage expressed as a percentage of the property's purchase price or valuation. A £180,000 mortgage on a £200,000 home is a 90% LTV mortgage, meaning the buyer has put down a 10% deposit. Lenders price mortgage products in LTV bands (commonly 95%, 90%, 85%, 80%, 75%, 60%) because a smaller deposit represents more risk to the lender if property prices fall and the home has to be repossessed and sold. As a result, the lowest interest rates are typically reserved for the lowest LTV bands, and rates step up noticeably at 90% and especially 95% LTV. LTV also matters when remortgaging: as a mortgage is paid down and (often) property values rise, a borrower's LTV falls, which can unlock access to cheaper rate bands at the end of a fixed or tracker deal. Lenders recalculate LTV using their own valuation of the property, which may differ from the price a buyer believes it is worth.