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Understanding loan-to-value (LTV)
Loan to Value, commonly referred to as LTV, represents the percentage of a property’s value that is financed through a mortgage.
How LTV works
For example, if you are purchasing a home valued at £200,000 and you have saved a £40,000 deposit, you will require a £160,000 mortgage. This scenario results in an LTV calculation as follows:
£160,000 ÷ £200,000 = 80% LTV
Calculate your LTV here
Importance of LTV
- A lower LTV indicates a larger deposit, which often leads to more favourable mortgage rates.
- Conversely, a higher LTV suggests a smaller deposit, which may limit your options and potentially result in higher interest rates.
Common LTV ranges
- 60% LTV: Typically offers the best rates available.
- 75% LTV: Provides a good variety of mortgage options.
- 85-90% LTV: Requires a smaller deposit but presents fewer deals.
- 95% LTV: Represents the minimum deposit scenario, associated with higher risk and elevated rates.
Quick Tip:
To improve your LTV ratio and possibly save more money over time, consider increasing your deposit amount when purchasing a property.
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