What does Loan to Value (LTV) mean when buying a home?

If you’re in the early stage of buying a home, or even just starting to explore how it all works, you’ll likely come across the term ‘Loan to Value’. The term may come up a lot during your journey, and if it isn’t explained to you clearly, it can make mortgages feel more complicated than they need to be.

To help you better understand mortgage offers, interest rates, and even why a lender might say yes or no to your application, here is a breakdown of what Loan to Value means when buying a home. 

Loan to Value is simply a way of showing how much of a property’s value you are borrowing, compared to how much you’re putting in upfront as a deposit. The Loan to Value figure is expressed as a percentage and is based on the property’s value as assessed by the lender. 

For example, if a property is worth £200,000 and you borrow £180,000, your Loan to Value is 90%. It means 90% of the property is funded by the mortgage and the remaining 10% comes from your deposit. You can learn more about how to calculate the LTV ratio here. 

This percentage is what lenders use when they talk about LTV, and it plays an important part in how mortgage products are priced and made available. 

From a lender’s point of view, Loan to Value is closely linked to risk. A lower LTV means you own more of your home from the start, which is generally seen as lower risk. Because of this, lower LTV mortgages often come with more choice and more competitive interest rates.

A higher LTV means a larger portion of the property is covered by the mortgage. From a lender’s point of view, this carries more risk, which is why higher LTV mortgages may have higher interest rates or fewer deals to choose from.

That said, higher Loan to Value mortgages aren’t a bad option. For many buyers, especially first-time buyers, they are a practical and realistic way to get onto the property ladder when saving a large deposit isn’t possible.

Your deposit has a direct impact on your Loan to Value, as a smaller deposit results in a higher LTV, while a larger deposit reduces it.

Mortgage products are usually grouped into Loan to Value bands, such as 95%, 90%, or 85%, though not all lenders offer mortgages at all LTV bands. Dropping into a lower LTV band can sometimes unlock better interest rates or more mortgage options, which is why buyers are often encouraged to save as much as they comfortably can for their deposit. 

First-time buyers can lower their Loan to Value ratio in a few practical ways, such as:  

• Saving for a larger deposit (or saving enough to move down a LTV band) 
• Buying jointly, or with help from family (like a gifted deposit) 
• Choosing a slightly more affordable property  

As you repay your mortgage, the amount you owe gradually decreases, which naturally improves your LTV. Plus, if your property value increases in value over time, this can improve it even further.

Having a lower LTV later on can put you in a stronger position when it comes to remortgaging, potentially giving you access to better interest rates or lower monthly payments.

It’s also important to remember that property values can go down as well as up. If values fall, your Loan to Value could increase, even if you’re keeping up with repayments. This is one reason lenders continue to pay close attention to LTV throughout the life of a mortgage.

If you’re thinking about buying a new build home and want to learn more about how mortgages work, you can read our collection of first-time buyer guides here. 

At Gleeson, we build modern, energy-efficient new build homes designed with first-time buyers in mind. With great locations and affordable prices, we make getting onto the property ladder easier. 

Explore our range of new build developments today and take the first step towards unlocking the door to a home that’s truly yours.

Please note: Gleeson Homes is not regulated by the FCA and does not offer financial advice. We recommend you seek independent legal and financial advice.