Loan to value (LTV) measures your mortgage size as a percentage of the total market value of your property. If you buy a home for £300,000 with a deposit of £30,000, you need a mortgage of £270,000, resulting in a loan to value ratio of 90%. Mortgage lenders use this ratio to evaluate lending risk. A lower ratio gives you access to cheaper interest rates, reduced monthly repayments, and a wider choice of mortgage deals.
What LTV is and why it matters
When buying a home or remortgaging in the United Kingdom, your loan to value ratio defines the split between your equity and borrowed capital. The deposit represents your personal stake. The remainder is the loan secured against the property.
Lenders evaluate mortgage applications based on risk. If property values fall, a borrower with a high ratio faces greater risk of negative equity, where the loan exceeds the market value of the home. Because high ratios represent greater exposure, lenders charge higher interest rates. Borrowers who supply larger deposits present lower default risk and qualify for the cheapest rates.
How to calculate your loan to value ratio
Calculating your loan to value ratio requires two figures: your total mortgage amount and the property valuation. Divide the loan balance by the property value and multiply by 100.
The formula is:
Loan to Value (LTV) = (Mortgage Loan Amount / Property Value) * 100
Here are three practical calculation examples:
- First-time buyer: You purchase a flat for £200,000 with a £20,000 deposit, requiring a mortgage of £180,000. Dividing £180,000 by £200,000 produces 0.90, which equals 90% LTV.
- Home mover: You buy a house for £400,000 using £100,000 of equity from your prior property, borrowing £300,000. Dividing £300,000 by £400,000 produces 0.75, which equals 75% LTV.
- Remortgage: Your home has a market valuation of £350,000 and your mortgage balance is £210,000. Dividing £210,000 by £350,000 produces 0.60, establishing a 60% LTV.
When remortgaging, the calculation uses current market valuation rather than original purchase price.
Typical loan to value bands in the UK
Lenders group mortgage products into pricing tiers rather than adjusting rates on a sliding scale. The standard bands across the UK mortgage market are 95%, 90%, 85%, 75%, and 60%.
| LTV Band | Minimum Deposit | Typical Borrower | Lender Risk Level |
|---|---|---|---|
| 95% | 5% | First-time buyers | Highest risk, premium pricing |
| 90% | 10% | First-time buyers and movers | Moderate risk, wide product choice |
| 85% | 15% | Movers with steady savings | Moderate risk, discounted rates |
| 75% | 25% | Established home buyers | Low risk, major pricing threshold |
| 60% | 40% | Homeowners remortgaging | Lowest risk, cheapest market deals |
Each step down into a lower band provides distinct financial advantages:
- 95% band: Requires a 5% deposit. It carries the highest interest rates because lenders retain only a 5% buffer against property price falls.
- 90% band: Reaching a 10% deposit unlocks mainstream products and provides an immediate rate discount compared to 95% borrowing.
- 85% band: Offers an intermediate reduction in monthly repayments without requiring a full 25% deposit.
- 75% band: Represents a major pricing threshold where lenders compete actively, lowering monthly interest costs.
- 60% band: The prime pricing tier. Borrowers with 40% equity secure the cheapest rates available. Lenders rarely discount rates below 60%.
How loan to value affects mortgage rates
Your ratio directly dictates the interest rate you receive and your total borrowing cost. Consider a £300,000 property purchased on a 25-year repayment term across different LTV bands:
- 95% LTV (£285,000 loan at 5.50%): Monthly repayment is £1,752.
- 90% LTV (£270,000 loan at 5.00%): Monthly repayment is £1,578.
- 75% LTV (£225,000 loan at 4.40%): Monthly repayment is £1,237.
- 60% LTV (£180,000 loan at 4.00%): Monthly repayment is £950.
Moving from 95% to 90% reduces monthly repayments by £174 and saves over £36,000 in interest over 25 years. Lower ratios also help borrowers pass regulatory affordability checks, as smaller loans relative to income reduce payment burdens. You can evaluate your borrowing capacity using our mortgage affordability calculator. Those deciding whether current borrowing rates justify purchasing rather than continuing to rent can compare both paths with the rent vs buy calculator.
Frequently asked questions
What is considered a good loan to value ratio in the UK?
A ratio of 75% or lower is widely considered good because it qualifies you for competitive interest rates from mainstream lenders. The lowest mortgage interest rates in the UK appear at 60% and below. Ratios above 85% carry higher monthly costs and stricter lending checks.
Can home improvements lower your loan to value ratio?
Yes, home improvements can lower your ratio if they increase the market valuation of your property. When you remortgage, the lender conducts a fresh valuation. If renovations increase your property value while your loan balance remains steady, your ratio decreases, which can move you into a cheaper band.
What happens to your loan to value ratio if house prices fall?
If property values decline while your mortgage balance remains constant, your ratio rises. For example, if you purchase a home for £200,000 with a £180,000 loan (90% ratio) and the value drops to £180,000, your ratio becomes 100%. A further decline results in negative equity, which limits remortgaging options until the balance is reduced.
Information provided for educational purposes, not regulated financial advice. Mortgage rates and eligibility criteria depend on individual circumstances and lender policies. Consult an independent mortgage adviser authorised by the Financial Conduct Authority before committing to a mortgage.