Loan-to-value (LTV) explained

Loan-to-value (LTV) explained

Loan-to-value (LTV) is one of the key figures lenders use when deciding how much mortgage finance they’re willing to offer. For home buyers, it’s also a practical way to understand how much deposit (or equity) you may need, and how that can affect the mortgage options available.

In simple terms, LTV compares the size of the loan to the value of the property.

What is loan-to-value (LTV)?

LTV is calculated as:

LTV = (mortgage amount ÷ property value) × 100

So, if a property is worth £300,000 and you’re borrowing £270,000, your LTV is:

• £270,000 ÷ £300,000 = 0.9
• 0.9 × 100 = 90% LTV

A higher LTV generally means a smaller deposit (or less equity), while a lower LTV usually means a larger deposit (or more equity).

How do you calculate your LTV?

You can work out your LTV using the loan amount and the property value.

Example: deposit-based calculation

If you’re buying a home for £250,000 and you have a £50,000 deposit, the mortgage you need is £200,000.

• £200,000 ÷ £250,000 = 0.8
• 0.8 × 100 = 80% LTV

Example: equity-based calculation (remortgage)

If you’re remortgaging and your property value is £350,000, but your current mortgage balance is £245,000, then your LTV is:

• £245,000 ÷ £350,000 = 0.7
• 0.7 × 100 = 70% LTV

Why does LTV matter for mortgages?

LTV is closely linked to lender risk. If a borrower has a smaller deposit, the lender is taking on a larger loan relative to the property’s value.

That’s why LTV can influence:

• The range of mortgage products available
• The deposit or equity you may need
• How lenders assess the overall risk of the application

You may also find that lenders price and structure mortgages differently depending on the LTV level.

What affects the LTV you can get?

Your LTV isn’t the only factor lenders consider. Even if you have the deposit to target a particular LTV level, lenders will still look at the wider picture.

Common factors that can influence what you can borrow include:

• Credit history
• Income and affordability (including regular outgoings)
• Deposit size and source of funds
• Mortgage fees and other costs
• The property itself (for example, valuation and condition)

Credit history and LTV

A lender may be less comfortable offering higher LTV borrowing if your credit history suggests past repayment issues. In practice, that can mean you may need either a larger deposit (lower LTV) or a different mortgage structure to meet lender expectations.

LTV and affordability: how the two work together

Affordability checks look at whether you can make the repayments based on your circumstances. LTV affects the size of the loan, and the size of the loan affects the repayment amount.

So even if a lender could theoretically lend at a higher LTV, they still need to be satisfied that the mortgage is affordable for you.

Factors that can affect affordability include:

• Unstable or fluctuating income
• High existing debt or monthly commitments
• Changes in circumstances (for example, approaching retirement)

Does your equity affect LTV when buying your next home?

Yes. If you already own property, the equity you have can reduce the LTV on your next purchase.

Equity is the portion of the property value that isn’t covered by your mortgage balance. The more equity you have, the more likely you are to be able to borrow at a lower LTV when you move.

Equity can increase over time through:

• Making mortgage repayments
• Overpayments
• Property value growth

When you buy your next home, the purchase price of the new property also matters. If the new home is significantly more expensive, your LTV may not fall as much as you’d expect, even if your equity has improved.

Remortgaging and LTV

When you remortgage, lenders reassess the loan against the current property value. That means your LTV may change since your original mortgage.

You may be in a stronger position if:

• You’ve repaid a meaningful portion of the mortgage
• Your property value has increased

A lower LTV can sometimes open up more options, but remortgaging decisions still depend on affordability, the mortgage product you’re moving to, and the costs involved.

First-time buyer LTV considerations

First-time buyers often need to borrow a higher percentage of the property’s value because they don’t have a previous home to sell and may have limited equity.

That can mean targeting a higher LTV level, which may affect the mortgage options available.

In some cases, first-time buyers may explore alternative ways to increase the effective deposit or equity position, but these arrangements can involve additional complexity and should be considered carefully.

Lowering your LTV: practical ways it can happen

If you’re aiming for a lower LTV, the most direct routes are:

• Saving a larger deposit
• Reducing the amount you need to borrow
• Increasing equity (for example, through overpayments or time)

Even small changes to deposit size can move you into a different LTV level, which may influence the mortgage options you can access.

LTV is only one part of the mortgage picture

LTV helps explain how much you’re borrowing relative to the property value, but lenders also consider affordability and overall risk. Your credit history, income, outgoings, and the property valuation can all affect what’s possible.

Understanding your LTV can still be useful because it gives you a clearer sense of the deposit (or equity) position you’re working with and how that may shape your mortgage options—whether you’re buying your first home, moving home, or remortgaging.