Loan-to-value (LTV) calculator

What is loan-to-value?

Loan-to-value (LTV) is the ratio of your mortgage against the value of your property.

It's a percentage figure that reflects the proportion of your property that is mortgaged and the amount that you own (usually called your equity).

For example, if you have a mortgage of £150,000 on a house that's worth £200,000, you own £50,000 in equity and have a loan-to-value of 75%.

Loan-to-value is a key consideration when you come to buy or sell your property, remortgage or release equity.

How to calculate loan-to-value

Your LTV is calculated by dividing the value of your mortgage by the value of your property (or the one you want to buy).

For example, if you want to buy a house with a value of £250,000 and you have a deposit or equity of £100,000, then you will need a mortgage of £150,000.

Here is the LTV calculation:

£150,000 / £250,000 = 0.6

0.6 x 100 = 60

LTV = 60%.

But, instead of doing this manually, you can use our calculator above to work out your loan-to-value. You simply need to input the amount you need to borrow and the amount your property is worth.

When you know your LTV, you can then compare mortgage rates.

Does loan-to-value affect mortgage interest rates?

Most mortgage lenders price their mortgages in LTV bands, which are usually set at 5% intervals between 60% and 95%.

Lenders typically offer lower mortgage rates for lower LTV mortgages as the borrower owns more equity in the property, reducing the risk to the lender.

This is because, should house prices fall, the risk of owing more on your mortgage than the current market value of your property is lower than if you owned a smaller amount of equity.

If you default on your mortgage and the lender needs to recover the debt by selling the property, they want some certainty that they can get back their money. For example, at 60% LTV, house prices have to drop by 40% before the lender will lose money, compared to a higher LTV of 90% where a 10% drop would result in negative equity.

If your LTV is just over a threshold, it may be worth seeing if you can drop to the lower band by saving up a larger deposit or overpaying your mortgage as this may give you access to more competitive mortgage deals. For example, if you have an LTV of 81%, dropping to 80% LTV or below could make a difference to the interest rates you qualify for.

How to influence your loan-to-value

Keeping your loan-to-value as low as possible is key – particularly if you're approaching the point where you need to remortgage. There are a few ways you can influence your loan-to-value:

Repaying your mortgage

The smaller the mortgage you have, the better. If you have a repayment mortgage, you will be slowly reducing your mortgage balance through your monthly payments, lowering your LTV in the process.

You can accelerate the repayment of your mortgage by overpaying, which could potentially help you clear the loan sooner and put you into a lower LTV band quicker. However, make sure you check for any early repayment charges and the terms of any overpayments.

If you've got an interest-only mortgage, remember that you're only covering the interest with your monthly payments which means your balance (and LTV) stays the same.

Maintaining and increasing the value of your property

By keeping your house well-maintained and decorated, you could minimise any loss of value if house prices go down.

You can even increase your property's value by carrying out home improvements, such as replacing the windows and doors with uPVC, upgrading the kitchen or bathroom and adding an extension or an en-suite.

If your property’s value increases (and you don’t borrow more on your mortgage or take out any loans secured against your home), this could help lower your LTV when it's time to remortgage.

For example, if you have a mortgage of £150,000 on a property worth £200,000, your LTV is 75%.

But, if you increase the value of your property to £220,000 and your mortgage remains at £150,000, your LTV will drop to 68%.

Looking at cheaper properties

If you’re buying your first home or moving house, you could reduce your loan-to-value by looking for cheaper properties. This may not be an option for everyone as you may have fixed requirements for your property (such as a certain location or a minimum number of bedrooms), but it’s worth considering how the cost of a property will affect your LTV.

The lower the property value, the less you’ll need to borrow with a mortgage. This means your loan-to-value will be lower without needing to increase your deposit or the equity you already own.

Is a high loan-to-value good or bad?

Mortgages with a higher loan-to-value aren’t necessarily bad as they may be the only way a first-time buyer with a small deposit can get on the property ladder.

However, higher LTV mortgages, such as those at 90% or 95% LTV, typically charge higher rates of interest.

If you have a high LTV mortgage and house prices drop, there’s also a greater risk of falling into negative equity (when you owe more on your mortgage than your property is worth).

Lenders rely on the fact that, should you default on your mortgage, they can sell the property to recover their debt and costs. So, if you have very little equity in your home, meaning you have a high LTV, then it may only take a small reduction in house prices to result in negative equity and a potential loss for the lender.

What is a good loan-to-value ratio?

There is no definitive good LTV and, unlike a credit score, it’s not connected to your creditworthiness or a score that decides if a lender will give you a mortgage.

LTV is a key factor lenders use to price their mortgages based on how much equity is in the home at the point you purchase or remortgage.

You can normally access more deals and get a better mortgage rate if you have a lower LTV, with anything lower than 80% typically considered “good”.

The lowest LTV band is usually 60% – at this point, most lenders do not reduce their rates any further for lower LTVs.

What is the maximum loan-to-value?

In the UK, the maximum LTV available without the help of a family member or guarantor mortgage is typically 95% LTV. This means the mortgage would cover 95% of your property’s value. A handful of lenders may offer 100% mortgages, but these will be subject to certain terms and conditions.

Not all lenders offer high LTV mortgages and the maximum LTV available can vary, so it’s worth checking the range of deals and LTVs currently available on our mortgage charts.