The loan to value (LTV) is essentially the size of mortgage a lender is prepared to offer you in relation to the value of the property you are buying or remortgaging.
It is expressed as a percentage. So, for example, if a lender offers a mortgage deal which has a maximum 80% LTV, that means they will lend you up to 80% of the property value.
Mortgage LTVs typically range from 50% up to 95%.
The LTV affects the amount you can borrow, and the rate you can borrow at. The lower the LTV, the better the mortgage rates available to you will be.
To find out which mortgage deals you are likely to be eligible for, you will need to work out your LTV, which means establishing what percentage of the property value you need to borrow, and how much you can cover with your deposit.
You can do this by dividing your mortgage amount by the value of the property. You then multiply this number by 100 to get your LTV.
For example, if you’re buying a property worth £250,000, and have a deposit of £50,000, you’ll need to borrow £200,000.
To find out what your LTV is, you need to divide £200,000 by £250,000.
This equals 0.8, which, when multiplied by 100, comes to 80%.
That means your LTV is 80% and your deposit is 20%, so you should look for mortgage deals with an 80% LTV.
The lower your LTV, the wider your choice of mortgages will be.
Lenders usually offer their most competitive mortgage deals to borrowers they consider lower risk, which means homebuyers with a big deposit to put down, or those who own a substantial amount of equity in their property if remortgaging.
If therefore, you qualify for a 50% LTV mortgage because you have a 50% deposit or the equivalent amount of equity if remortgaging, you’ll benefit from better rates and greater choice than someone with a smaller deposit or equity.
Similarly, if your LTV is 60% you’ll usually have a wide range of competitive deals to choose from, as lenders will still consider you less likely to default on your mortgage than someone with a smaller deposit or equity.
If your LTV is 75% you’re also likely to qualify for a wide range of deals at lower rates than you’d be offered with a higher LTV. If you have additional savings available, it therefore may be worth considering using these to reduce your mortgage amount, as this could ultimately get you a better mortgage deal and save you money in the long run. Always make sure you keep some savings available that you can use in the event of an emergency.
If you only have a small deposit to put down, such as 5% or 10% of the property value, you will be restricted to 95% or 90% LTV mortgage deals.
The good news is that recent years have seen increasing numbers of lenders launch high LTV deals, although the rates offered will be higher compared to lower LTV mortgages.
Prior to the 2008 financial crisis, some lenders used to offer 100% LTV mortgages, where you didn’t need to put down a deposit at all, but these are now considered too high risk. Some even offered 125% LTV deals, where you could borrow more than the property’s value, but again, these are no longer available.
If you want to buy a property to let out and need a mortgage, you’ll usually find LTVs on buy to let mortgages are generally a bit lower than they are on residential mortgages, as they represent a higher risk to lenders.
The maximum amount you’re likely to be able to borrow is 75% to 80% of the property value. Bear in mind too that buy-to-let mortgage rates will usually be higher than residential rates.
We've got lots of useful mortgage calculators to help you find out more about how much you can borrow, what it will cost, what fees will be involved and what else you should consider.
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