What is loan to value?

Learn what loan to value is and how it could affect you buying a home.

What is loan to value ratio?

Loan to value is the percentage of borrowing you take out against your home. For example, if you have a £180,000 mortgage on a £200,000 house, the loan to value ratio would be 90%.

How do you work out your LTV ratio?

Loan to value ratio, or LTV, is the ratio of what you borrow as a mortgage against how much you pay as a deposit.

Here’s how loan to value ratio works:

You pay a deposit of £20,000 for a property worth £200,000.

You get a mortgage of £180,000 to pay for the rest.

Your deposit covers 10% of the house price.

So, your LTV is 90%.

Why do I need to know my LTV?

  • The more you can put down as a deposit, the lower the LTV will be
  • Lenders look at your LTV when deciding if they’ll accept your mortgage application – the lower, the better
  • Your LTV will come up whenever you remortgage, or if you’re a first-time buyer

Loan to value and equity

The lower your LTV ratio, the higher your equity in a property. Having higher equity can help protect you from negative equity.

The value of a house can rise and fall. If the value of your home is lower than the amount you still have remaining to pay on a mortgage, you are in negative equity. This can make it harder to sell or remortgage. 

Improving your loan to value ratio

There are some ways you can improve your loan to value ratio. These may apply if you’re a first-time buyer or remortgaging.

Either way, try to increase the amount of equity in your home so you don’t need to borrow as much.  

You can do this by: 

  • Saving more towards your deposit
  • Pushing for a lower price on a new home than the seller is asking
  • Adding value to your current home by making home improvements

Benefits vs Risks

Benefits of a lower LTV

  • Lenders will be happier if you’ve already got a decent amount of equity to put into a new home, or plan to stay put in yours. They’ll see you as being at a lower risk of missing repayments, which means you might benefit from a lower interest rate on your mortgage. 

Risks of a higher LTV

  • A loan to value ratio that decreases or stays the same over time may put you in a difficult position when you want to sell up or remortgage. 

The content on this page is for reference and does not constitute financial advice. For impartial financial advice, we recommend government bodies like the Money Advice Service.

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  • Find out how much you could borrow from Halifax
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