Loan-to-Value: What Is Loan-to-Value?

Making Sense Of Three Little Letters

If you have started looking at mortgages, you will have seen the letters LTV attached to almost every deal. It sounds technical, but the idea behind it is simple: it describes how much of a property's value you are borrowing, and how much you are covering yourself with a deposit or the equity you already own.

Understanding it properly can save you money, because the number you land on often decides which mortgage deals you can actually apply for. Here is what it means, in plain English.

Who Should Read This

This guide is for anyone in the UK weighing up a mortgage. That includes first-time buyers saving a deposit, home movers working out what they can borrow, and existing homeowners thinking about remortgaging. It is also useful if you have been quoted a rate and want to understand why you were offered that particular deal.

What Loan-To-Value Actually Means

Loan-to-value is the size of your mortgage expressed as a percentage of the property's value. UK lenders calculate it by dividing the mortgage amount by the property value, then multiplying by 100. So if you borrow £160,000 against a home worth £200,000, your LTV is 80%. The remaining 20% is funded by your deposit or, if you already own the home, by your equity.

Official UK guidance uses the same framing. HMRC's internal manual describes loan-to-value as the proportion of a property's value that a lender is prepared to lend, and mortgage providers explain it to customers in exactly the same percentage terms.

It is worth separating LTV from affordability, because the two are often confused. LTV measures borrowing against the property. Affordability looks at your income, outgoings and credit commitments to judge whether the repayments are sustainable. Lenders assess both, but they answer different questions.

LTV tells a lender how exposed they are. Affordability tells them whether you can comfortably keep up the payments.

How To Work Out Your Own LTV

The maths is straightforward, and it only takes a moment. Divide the loan by the value, multiply by 100.

If you are buying, use the purchase price (or the lender's valuation, if that comes in lower). A £300,000 home with a £60,000 deposit means a £240,000 mortgage, which is an 80% LTV. Push the deposit to £75,000 and the mortgage drops to £225,000, giving 75% LTV.

If you are remortgaging, the calculation changes slightly but importantly. You use the amount still outstanding on your mortgage and the property's current value, not what you originally paid. HSBC and other UK lenders set it out the same way: remaining balance divided by today's value, multiplied by 100. That means house price movements can shift your LTV even if your loan balance has barely changed. If your home has gone up in value, you may find yourself in a lower band without having done anything at all. If values have fallen, the reverse applies.

Why It Affects The Rate You Are Offered

LTV is one of the main filters lenders use to decide whether to lend, how much, and at what price. A higher LTV means you hold less equity, so there is a smaller cushion if property values fall or payments stop. Lenders price that risk into the interest rate.

In practice, UK lenders tend not to treat LTV as a smooth sliding scale. They group products into bands, commonly 95%, 90%, 85%, 80%, 75% and 60%, with the most competitive deals usually sitting below 60%. Crossing a band boundary can matter as much as the exact percentage. Nudging from 91% down to 90% can open up a noticeably different set of products, while moving from 91% to 90.5% may change nothing at all.

This is also why two people with similar incomes can be offered very different mortgages. If one has a 15% deposit and the other has 5%, they are shopping in different parts of the market, even before affordability is considered.

The Balance Of Higher And Lower LTV

Factor	Lower LTV (bigger deposit or more equity)	Higher LTV (smaller deposit or less equity)
Interest rates	Usually cheaper, as lenders see less risk	Typically higher to reflect greater risk
Product choice	Wider range of mainstream deals	Fewer options; above 95% is specialist territory
Cash needed upfront	More deposit required, so longer to save	Get on the ladder sooner with less saved
Monthly payments	Smaller loan and better rate usually mean lower payments	Larger loan plus higher rate raises payments
Equity cushion	More protection if house prices dip	Greater exposure to negative equity
Approval likelihood	Generally more straightforward	Criteria can be tighter and stricter
Flexibility later	Easier to remortgage onto competitive deals	May need to wait for equity to build

Points Worth Watching Closely

A few things catch people out. The first is valuation. Your LTV is based on the lender's valuation, not the asking price or your own estimate. If a valuation comes in lower than expected, your LTV rises and the deal you applied for may no longer be available.

The second is band boundaries. If you are sitting just above a threshold, such as 90.4%, it can be worth finding a modest amount of extra deposit to slip under 90%. A small change can have a disproportionate effect on the rate.

Third, remember that a good LTV does not guarantee approval. Affordability, credit history and lender criteria all still apply. Equally, fees matter: a headline rate in a lower band can be offset by a large arrangement fee, so always compare the overall cost.

Finally, if you are remortgaging, do not assume your LTV has improved. Check current local values rather than relying on national headlines about house prices.

Other Routes To Consider

1. Save a larger deposit before applying. Waiting a few months to cross into a lower LTV band can reduce your rate and widen your choice of lenders, though you will need to weigh this against rent paid in the meantime and any movement in house prices.
2. Overpay your current mortgage. For existing homeowners, reducing the outstanding balance lowers your LTV ahead of a remortgage. Check whether your deal allows overpayments without early repayment charges.
3. Buy a slightly less expensive property. The same deposit stretches further against a lower purchase price, automatically improving your LTV.
4. Family assistance or gifted deposits. Some lenders accept gifted deposits from close family, and guarantor or joint borrower arrangements exist. Each has legal and practical implications worth advice.
5. Government-backed and shared ownership schemes. Depending on availability and eligibility, these can reduce the borrowing needed against your share of the property.
6. Specialist high-LTV lending. If waiting is not realistic, some lenders operate at 95% LTV and above. Expect stricter criteria and higher pricing.
7. Speak to a broker. A whole-of-market view can identify lenders whose banding or valuation approach suits your circumstances best.

Common Questions About LTV

What is a good LTV in the UK? There is no single answer, but lower is generally cheaper. Many buyers aim for 90% or below, and the most competitive rates typically sit at 60% LTV or under. An 80% LTV is a widely used benchmark and a sensible reference point when comparing deals.

Is LTV the same as how much I can borrow? No. LTV caps borrowing relative to the property's value, while affordability assessments look at your income and outgoings. Both need to line up. You could pass one and fall short on the other.

Does a bigger deposit always mean a cheaper mortgage? Usually it helps, but the gain comes mainly from crossing into a lower LTV band. Adding a small amount that keeps you within the same band may make little difference to the rate, though it will reduce the amount you borrow.

How do I calculate LTV when remortgaging? Divide your outstanding mortgage balance by your property's current value, then multiply by 100. Use today's value, not the price you originally paid.

Can my LTV change without me doing anything? Yes. If your property rises in value, your LTV falls; if values drop, it rises. This is why remortgage options can improve or narrow over time.

What happens if my LTV is above 100%? That is negative equity, where you owe more than the property is worth. Remortgaging options become limited, and it is worth getting advice on your next steps.

Where Kandoo Fits In

Kandoo is a UK finance broker, and our role is to make borrowing decisions clearer rather than pushier. We can help you understand how your deposit or equity translates into an LTV figure, what that means for the deals likely to be open to you, and which questions to ask before you commit. No jargon, no pressure, and a straight answer about whether a product genuinely suits your situation.

Important Information

This article is for general information only and is not financial or mortgage advice. Rates, lender criteria and LTV bands change and vary between providers, so figures used here are illustrative examples. Your home may be repossessed if you do not keep up repayments on your mortgage. Always seek advice tailored to your own circumstances before making a decision.