Loan to Value (LTV)

loan to valueThe loan to value is one of the most important risk factors that a lender will need to assess when considering a mortgage application and is the predominant factor that dictates the interest rate you will be repaying.

What is Loan to Value (LTV)?

Loan to value (LTV) is a term that expresses the amount to be borrowed against the value of the property offered as security as a percentage.

e.g. If the mortgage required is £175,000 to purchase a property worth £250,000, the LTV would be 70% (£175,000 / £250,000 x 100).

The value of the property is usually provided by an independent surveyor and the lender will usually use either the purchase price of the property or the market value as provided by the surveyor, whichever is the lower.

The reason LTVs are important is that they give an indication of the level of risk involved. The higher the LTV, the less chance the lender has of recovering their money if the property needed to be sold. LTVs also enable the lenders to create a buffer to protect themselves in case the property value dropped.

Lender will always seek to lend low LTV mortgages as they present the lowest level of risk and you will find low LTV mortgages are fiercely contests between lenders. Most lenders will offer a preferential interest rate if the LTV is below a certain percentage. For example, you may see a lender offering a 2-year fixed rate mortgage with two interest rates, 4.59% for LTVs of 75% and below and 4.79% for LTVs above 75%. Reductions in interest rates are typically seen at 50%, 75% and 90% LTVs.

It is for this reason that Loan to Values do not just help the lender, they can also be very useful as a borrower. The greater the deposit you're able to put down, the lower the LTV and therefore the more likely you are to receive a better interest rate. Secondly, lower LTVs help to reduce the risk of negative equity.

The higher the loan to value, the riskier the loan is the the lender and so it is likely to be more expensive. At 90% LTV, many lenders will start to charge a high LTV fee otherwise known as a higher lending charge and 95% LTV is the highest amount most lenders are prepared to lend.

In the past, it was possible to borrow the full value of the property known as a 100% mortgage and some lenders would even offer above this up to 125%; however, due to the recent credit crisis most lenders are being more careful in their lending and these products have almost totally been withdrawn.

Another LTV term you may see is 'combined LTV'. This is mainly seen for commercial loans where either more than one property is used as security for a loan or one property secures more than one loan. The combined LTV is simply the LTV calculated once all property values and loans are summed together. This provides the lender with the overall risk of the loan.

  Value Loans LTV
Property 1 £500,000 £350,000 70%
Property 2 £250,000 £50,000 20%
Property 3 £225,000 £125,000 56%
Combined LTV £975,000 £525,000 53.8%

An example of how the combined LTV is calculated.


  • Loan to value is the term that describes the loan amount as a percentage of the either the purchase price or appraised market value
  • The lower the LTV, the lesser the risk for the lender and therefore you are more likely to receive a better interest rate

For more information about 'Loan To Values', you can call us on 020 8783 1337 or submit an online quote.