Ever wonder why lenders keep asking about your loan to value? In plain terms, the LTV ratio shows how much of a property's value you’re borrowing. A lower LTV usually means a safer loan for the bank and cheaper rates for you. Understanding this number can save you hundreds, sometimes thousands, of pounds over the life of your mortgage.
The LTV ratio is simple math: loan amount ÷ property value × 100. If you want to buy a house worth £300,000 and you’re borrowing £210,000, your LTV is 70% (210,000 ÷ 300,000 × 100). Lenders use this figure to gauge risk – the higher the percentage, the riskier the loan.
Most banks set a maximum LTV for standard mortgages, often around 80% for first‑time buyers and 90% for certain government‑backed schemes. Anything above those limits usually requires a larger deposit, a guarantor, or a special high‑LTV product, which often comes with higher interest rates.
A low LTV can open doors to better deals. Lenders view borrowers with a 60‑70% LTV as low‑risk, so they’ll offer lower interest rates and more flexible terms. Conversely, a high LTV (say 95%) signals higher risk, and you’ll likely face steeper rates, stricter conditions, or even a denial.
Besides rates, LTV influences other costs. High‑LTV loans may need mortgage insurance, called “payment protection” in the UK, which adds a monthly fee. Some lenders also require a larger upfront fee or limit the amount you can borrow for certain property types.
Knowing your LTV before you start house hunting helps you set realistic expectations. If you have a modest deposit, you might need to look at cheaper properties or consider saving a bit more before applying. On the flip side, if you already have a sizable down payment, you could negotiate for better terms or even qualify for a premium mortgage product.
Here are three quick ways to improve your LTV:
Remember, the LTV isn’t the only factor lenders look at, but it’s a big one. Keep your ratio in a comfortable range, and you’ll likely enjoy smoother approval, better rates, and lower overall costs.
Finally, run the numbers using an online LTV calculator before you commit. Plug in your expected loan and property values, and you’ll see instantly how a few thousand pounds more in your pocket can change the whole equation. It’s a quick habit that pays off in real savings over the years.
Thinking about squeezing more money out of your home when you remortgage? This article breaks down how lenders decide what you can borrow, the key factors that shape your options, and common pitfalls to watch out for before you sign anything new. Find out how much extra cash you could unlock and what you’ll need to get approval. Get tips for boosting your borrowing power without getting in over your head.
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