If you are in the market for your first home you may well have heard people talking about LTV (or Loan to Value) and wondered just what it means.

Loan to Value is a ratio, expressed as a percentage, that tells you what proportion of a property’s value is accounted for by mortgage. In simple terms, if a property was worth £200,000 and you had a mortgage of £180,000 on the property, then your LTV would be 90%.


Loan on property x 100 = LTV%
Value of property*

180,000 x 100 = 90% LTV

So why do we need to know the LTV ratio?

For a variety of reasons. First of all, most mortgage lenders nowadays require borrowers to introduce a deposit equivalent to at least 5% of the property’s value. Trying to obtain a mortgage without a deposit will be very difficult. There are, though, several schemes aimed at buyers without the requisite deposit, so don’t be too disheartened!

Secondly, the lower the LTV ratio (in other words, the larger the equity in your property) the better the terms of borrowing are likely to be. This is because the lender considers the loan to be much less risky if you have a larger deposit or the property has increased in value, reducing the current LTV ratio.

The more deposit or equity, you’ll be more likely to obtain a loan on more attractive terms, including a lower interest rate.

A property’s value is not necessarily the same as the purchase price. To assess a property’s value for mortgage purposes, a borrower must pay for a mortgage valuation to be undertaken on behalf of the lender. This cost is usually borne by the borrower. Mortgage valuers must be properly qualified and will usually be one of a number of authorised valuers on a list approved by the lender. However, some lenders may not even visit the property, instead they rely on house price data or a virtual valuation.

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