Whether you're buying your first home, remortgaging, or investing in property, Loan-to-Value (LTV) is one of the most important factors lenders consider. It can influence the mortgage rates available to you, how much you can borrow, and even which lenders are willing to offer finance.
What is Loan-to-Value (LTV)?
Loan-to Value, also referred to as LTV, is the portion of a property’s value that you borrow through a mortgage, expressed as a percentage.
For example:
- Property Value: £250,000
- Mortgage Amount: £200,000
- Deposit: £50,000
£200,000 ÷ £250,000 = 80% LTV
In this case, you would be borrowing 80% of the property’s value and contributing 20% as a deposit.
How Does LTV Affect Mortgage Rates?
Lenders generally view borrowers with larger deposits as lower risk. As a result, lower-LTV mortgages typically attract more competitive interest rates and provides buyers with a wider choice of lenders.
Does LTV Affect Buy To Let Landlords Differently?
Buy to let landlords may feel more of an impact than residential buyers as lenders offer their best rates at 75% LTV or below compared to up to 95%. For landlords, borrowing at a higher LTV may restrict product options and affordability calculations. A lower LTV can help landlords meet rental stress test requirements more easily.
How Does LTV Affect Your Borrowing Power?
Many people focus solely on affordability calculations when considering how much they can borrow. However, LTV also plays an important role.
Lenders may limit maximum borrowing based on:
- Property type
- Credit history
- Employment status
- Mortgage purpose
- Buy-to-let criteria
- Portfolio size for landlords
For example, while a lender may offer up to 95% LTV on a residential mortgage, they may restrict buy-to-let borrowing to 75% LTV.
This means your available deposit can directly impact both your borrowing options and lender choice.
Why Do Lenders Care About LTV?
Lenders use Loan-to-Value (LTV) as a measure of risk. The higher the LTV, the larger the proportion of the property's value being funded by the lender, which increases their potential exposure if property prices fall or the borrower encounters financial difficulties.
For example, if a property worth £250,000 is purchased with a 95% LTV mortgage, the lender has provided £237,500 of the purchase price. If property values decline and the property needs to be sold, there is a greater risk that the sale proceeds may not fully cover the outstanding mortgage balance.
This is why lenders often reward borrowers with larger deposits. Lower-LTV mortgages are generally seen as lower risk because the borrower has more equity in the property and is less likely to fall into negative equity. As a result, borrowers with lower LTVs can often access:
- More competitive interest rates
- A wider choice of mortgage products
- Higher borrowing flexibility
- Easier approval for remortgages and additional borrowing
For buy-to-let landlords, LTV is particularly important because it affects both mortgage pricing and affordability assessments. A lower LTV can improve rental stress test calculations and increase the range of lenders willing to consider an application.
Typical Buy to Let LTV Pricing Bands
60% LTV: Often provides access to some of the most competitive rates available.
65% LTV: May offer slightly more borrowing while still benefiting from attractive pricing.
75% LTV: The most common maximum LTV for buy-to-let mortgages and often a key pricing threshold for lenders.
80%-85% LTV: Available from a smaller selection of lenders, usually with higher rates and stricter affordability requirements.
Next Steps
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