What is Loan to Value? (LTV)

Loan to value is the ratio between the amount of money you borrow (the loan), against the purchase price you pay for a property (the value). This is usually presented in the form of a percentage. If you purchase a property for £200,000 and you have a £20,000 deposit, your loan to value ratio would be 90%.

Read on to find out more about loan to value (LTV) ratios, how they’re calculated, and how that might affect your mortgage options.

When you take out a mortgage, your LTV is calculated using the following factors:

1. the purchase price of your property
2. your deposit amount - how much you are paying towards the property
3. the amount you'll be borrowing - the total loan amount of your mortgage

Once you have these three figures, you can then find the LTV of your mortgage as a percentage. Divide the deposit amount by the purchase price and then multiply the result by 100. Most online mortgage calculator tools can work this out for you.

You might be offered lower interest rates if you have a smaller loan to value ratio. Having a smaller deposit doesn't mean that you won't be offered a mortgage, but if you can afford a larger deposit this might affect the rate you are offered. It could also mean your monthly payments are lower or you might be able to take a shorter mortgage term.

A lower loan to value ratio is often seen as lower risk by mortgage lenders. This is because a low LTV makes your loan more affordable. There are products available for lower deposit mortgage though, particularly for first time buyers.

If you want to improve your loan to value ratio then there are a few things that can help. By improving your loan to value ratio you might benefit from lower rates and your monthly payments would be reduced over the same mortgage term. Some key things that can improve your LTV are as follows:

• Saving more towards a larger deposit
• Negotiate a lower purchase price
• Adding value through home improvements or remortgaging