What Is Loan-to-Value (LTV) and Why Does It Matter? (UK Mortgage Guide)

When researching mortgages, you’ll often see the term Loan-to-Value, usually shortened to LTV.

It’s one of the most important factors lenders use when deciding which mortgage products are available and what interest rate you may be offered.

However, many first-time buyers aren’t sure what LTV actually means or why it matters so much.

This guide explains what Loan-to-Value is, how it’s calculated, and how it affects your mortgage options.

⚠️ This article is for general information only and does not constitute mortgage advice. Mortgage eligibility depends on individual circumstances and lender criteria can change.

What is Loan-to-Value (LTV)?

Loan-to-Value refers to the percentage of the property’s value that you borrow from the lender.

In simple terms, it compares the size of your mortgage to the value of the property you are buying.

The larger your deposit, the lower your Loan-to-Value.

How Loan-to-Value is calculated

Loan-to-Value is calculated using a simple formula:

Mortgage amount ÷ Property value × 100

For example:

Property price: £200,000
Deposit: £20,000
Mortgage amount: £180,000

£180,000 ÷ £200,000 = 90% LTV

This means you are borrowing 90% of the property value, with a 10% deposit.

Common mortgage LTV levels

Mortgage products are usually grouped into different Loan-to-Value bands, such as:

• 95% LTV – 5% deposit
• 90% LTV – 10% deposit
• 85% LTV – 15% deposit
• 80% LTV – 20% deposit
• 75% LTV – 25% deposit
• 60% LTV – 40% deposit

Generally speaking, the lower the LTV, the more mortgage options become available.

Why LTV matters to lenders

Loan-to-Value helps lenders measure how much risk they are taking when lending money.

If a borrower has a larger deposit, the lender is taking on less risk.

For example:

If a buyer purchases a property with a 10% deposit, the lender still has a buffer if property prices fall.

With a 100% mortgage, there is no deposit buffer, which increases the lender’s risk.

Because of this, lenders often offer better interest rates at lower LTV levels.

How LTV affects mortgage interest rates

In most cases, mortgage interest rates become cheaper as your LTV decreases.

For example:

• 95% LTV mortgages usually have higher rates
• 90% LTV mortgages may be slightly cheaper
• 75% or 60% LTV mortgages often have the lowest rates

This is why buyers who are able to save larger deposits may have access to more competitive mortgage deals.

Can LTV change over time?

Yes — your Loan-to-Value can change over time.

This can happen if:

• You pay down your mortgage balance
• Your property value increases

For example:

If your mortgage reduces from £180,000 to £160,000, and your property value remains £200,000, your LTV becomes 80%.

This may allow you to access better mortgage rates when you remortgage in the future.

What if you have a small deposit?

Many first-time buyers start with higher LTV mortgages, such as 95% LTV.

There are also products designed to support buyers with smaller deposits, including:

• £5,000 deposit mortgages
• Gifted deposits from family
• Family support mortgage schemes
• 100% mortgages in certain circumstances

Understanding LTV helps buyers compare these options and see how deposit size affects borrowing.

Final thoughts

Loan-to-Value is one of the key factors lenders use when assessing mortgage applications.

It affects:

• The mortgage products available
• The interest rates offered
• The lender’s level of risk

Understanding how LTV works can help first-time buyers make better decisions when planning their deposit and choosing a mortgage.

This article provides general information only. Mortgage eligibility and suitability depend on individual circumstances and lender criteria can change. A mortgage adviser can help explain how Loan-to-Value affects the options available to you.

Based in Brecon, Powys, I support first-time buyers locally and across the UK with clear, jargon-free mortgage advice tailored to their individual circumstances.