Understanding Loan-to-Value (LTV): What It Means for Your Mortgage

When you apply for a mortgage, one term you'll hear repeatedly is loan-to-value — or LTV. It's one of the most important numbers in determining what mortgage deals you can access and how much interest you'll pay.

Here's everything you need to know.

What is loan-to-value (LTV)?

LTV is simply the size of your mortgage expressed as a percentage of your property's value.

LTV = (Mortgage amount ÷ Property value) × 100

For example, if you're buying a £250,000 property with a £25,000 deposit, your mortgage would be £225,000.

LTV = (225,000 ÷ 250,000) × 100 = 90% LTV

Why does LTV matter?

Lenders use LTV as a measure of risk. The lower your LTV, the less risk the lender takes on — because if they had to repossess and sell the property, there's a bigger buffer between the property value and the loan.

Lower risk means better rates. Here's a rough guide to how LTV affects the rates available:

• 95% LTV — Rates available but higher; fewer lenders
• 90% LTV — Good range of products begins to open up
• 85% LTV — Noticeable improvement in available rates
• 75% LTV — Access to most competitive deals in the market
• 60% LTV or below — The very best rates available

"Dropping from 90% LTV to 85% LTV by saving a slightly larger deposit can reduce your mortgage rate by 0.3–0.8%, which adds up to thousands of pounds over a 5-year deal."

How to improve your LTV

There are two ways to lower your LTV: increase the deposit or decrease the loan size.

Increasing your deposit:

• Save more before purchasing
• Accept a gift from family (lenders require a gifted deposit letter)
• Use a Lifetime ISA — the government adds a 25% bonus to savings up to £4,000/year

Decreasing the loan:

• Buy a less expensive property
• For remortgagers: make overpayments to reduce your balance before the deal ends

LTV thresholds to target

Lenders typically price mortgages in bands. The key thresholds are:

• 95% — The minimum for most lenders; products often have higher fees
• 90% — A significant step up in deal quality
• 85% — Another pricing breakpoint for many lenders
• 75% — Where the best mainstream rates become available
• 60% — Premium tier, typically for lower-risk borrowers

Even saving an extra £2,500–£5,000 to cross a threshold can make a meaningful difference to your monthly payments.

LTV when remortgaging

If you're remortgaging, your LTV may have improved since you originally bought the property. This can happen because:

• You've paid down your mortgage over several years
• The value of your home has increased

It's worth getting an updated valuation when remortgaging — you could find you're in a better LTV band than expected, which unlocks better rates.