How This Loan-To-Value Calculator Work

Ever wondered how much of your property you actually own? That’s where our loan-to-value (LTV) calculator comes in handy. 

This nifty tool helps you figure out the percentage of your property’s value that you’re borrowing through your mortgage. 

It’s a crucial figure that lenders use to assess the risk of lending to you. 🔍

Our LTV calculator takes three key pieces of information: 

• The current value of your property,
• The amount you’re looking to borrow (or the amount you still owe on your mortgage), and
• Any deposit you’re putting down (for new purchases).

With these numbers, it quickly crunches the figures to give you your LTV percentage.

How To Use Our Loan-To-Value Calculator?

Using our LTV calculator is as easy as pie. 

Here’s what you need to do:

1. Enter your property’s current market value. If you’re not sure, you can use recent sold prices of similar properties in your area as a guide.
2. Input the amount you want to borrow. If you’re remortgaging, this would be your outstanding mortgage balance.
3. If you’re buying a new property, enter your deposit amount. For remortgages, you can skip this step.
4. Hit the ‘Calculate’ button, and voila! You’ll get your LTV percentage instantly.

Remember, this tool is designed to give you a quick snapshot of your borrowing situation. 

It’s not a substitute for professional financial advice, but it can certainly help you understand your position better.

📝Things To Keep In Mind

While our LTV calculator is a brilliant starting point, there are a few things you should bear in mind:

1. Accuracy is key – The calculator’s results are only as good as the information you put in. Make sure you’re using the most up-to-date and accurate figures for your property value and mortgage amount.
2. It’s an estimate, not an offer – This calculator provides an estimate of your LTV. It’s not a mortgage offer or a guarantee of what any lender will actually offer you.
3. Property values fluctuate – Remember that property values can go up and down. If you’re using an old valuation, your actual LTV might be different.
4. It doesn’t save your data – For your privacy and security, this calculator doesn’t store any of the information you input.
5. Other factors matter too – While LTV is important, lenders consider other factors when deciding on a mortgage, like your income, credit score, and overall financial situation.

What Do Your Results Mean?

So, you’ve punched in your numbers and got your LTV percentage. 

But what does it actually mean? 🤔

Let’s break it down:

If your LTV is 90%, it means you’re borrowing 90% of your property’s value. In other words, you have 10% equity in your home.

Generally speaking, the lower your LTV, the better position you’re in. Here’s a rough guide:

• 95% LTV or higher – You’re in a high LTV bracket. Mortgage options might be limited and interest rates could be higher.
• 90-95% LTV – Still considered high, but you’ll have more options than at 95%+.
• 80-90% LTV – You’re in a better position, with more competitive rates available.
• 75-80% LTV – This is where you start to see some of the best deals.
• Below 75% LTV – You’re in a strong position and should have access to the most competitive rates.

Remember, these are general guidelines. Each lender has their own criteria, and your personal circumstances will also play a role.

Digging Deeper: Loan-To-Value Explained

Now that you’ve got a handle on the basics, let’s dive deeper into the world of LTV. 

Understanding this concept inside and out can give you a real edge when it comes to managing your mortgage.

What is LTV?

LTV, or loan-to-value, is a ratio that compares the size of your mortgage to the value of the property you’re buying or remortgaging. 

It’s expressed as a percentage and is one of the key metrics lenders use when assessing mortgage applications.

For example, if you’re buying a £200,000 house with a £20,000 deposit and a £180,000 mortgage. 

Your LTV would be 90% (180,000 / 200,000 x 100 = 90%).

Why Is LTV Important?

LTV is crucial because it helps lenders assess the level of risk involved in giving you a mortgage. 

From their perspective, the higher the LTV, the riskier the loan. 

Why? 

Because if property values fall and you default on your mortgage, they might not be able to recoup their money by selling the property.

For you as a borrower, LTV is important because it affects:

1. Whether you’ll be approved for a mortgage 👍
2. The interest rate you’ll be offered 📈
3. The range of mortgage products available to you  🏠

Generally, the LOWER your LTV, the BETTER deal you can secure.

What Does Loan To Value (LTV) Mean For Your Mortgage?

Your LTV can have a significant impact on your mortgage options and costs. 

Here’s how:

1. Mortgage approval – Some lenders have maximum LTV limits. If your LTV is too high, you might not be eligible for certain mortgages.
2. Interest rates – Lower LTVs often come with lower interest rates. Even a 5% difference in LTV can sometimes mean a noticeable difference in your rate.
3. Mortgage products – Certain mortgage types, like offset mortgages or some fixed-rate deals, might only be available at lower LTVs.
4. Remortgaging options – When it’s time to remortgage, your LTV will affect the deals available to you. If your LTV has decreased (either through paying off your mortgage or your property increasing in value), you might be able to access better rates.

How To Calculate LTV?

Calculating LTV is straightforward. Here’s the formula:

• LTV = (Mortgage amount / Property value) x 100

For example, if you’re borrowing £150,000 on a property worth £200,000: LTV = (150,000 / 200,000) x 100 = 75%

If you’re buying a new property, you can also calculate it this way:

• LTV = ((Property value – Deposit) / Property value) x 100

So, if you’re buying a £250,000 property with a £50,000 deposit: LTV = ((250,000 – 50,000) / 250,000) x 100 = 80%

What is a Good LTV for a Mortgage?

What counts as a ‘good’ LTV depends on YOUR circumstances and the current mortgage market. 

However, as a general rule:

• Below 80% is considered good
• Below 75% is very good
• Below 60% is excellent

Remember, the lower your LTV, the better position you’re in. 

But don’t worry if your LTV is HIGHER – many lenders offer mortgages at 90% or even 95% LTV, especially for first-time buyers.

What Factors Affect My LTV Ratio?

Your LTV ratio isn’t set in stone – it’s influenced by several factors that can shift over time. 📉📈

Knowing these can help you manage your LTV more effectively:

• Property value – This is perhaps the most volatile factor. As property prices vary, so does your LTV. If your property value increases, your LTV decreases, even if you haven’t paid off any more of your mortgage. Conversely, if property values fall, your LTV could rise.
• Mortgage balance – As you pay off your mortgage, your LTV naturally decreases. Making overpayments, if your mortgage allows, can help reduce your LTV faster.
• Home improvements – Significant renovations or extensions can increase your property’s value, potentially lowering your LTV. However, be cautious – not all improvements add value, and some might not increase the value enough to offset their cost.
• Your deposit – When you’re buying a property, the size of your deposit directly impacts your initial LTV. A larger deposit means a lower LTV from the start.
• Remortgaging – When you remortgage, your LTV is recalculated based on your current mortgage balance and an up-to-date property valuation.
• Market conditions – Broader economic factors can influence both property values and mortgage rates, indirectly affecting your LTV.
• Mortgage Type – If you have an interest-only mortgage, your balance won’t decrease over time, keeping your LTV static (unless property values change). With a repayment mortgage, your balance decreases faster, lowering your LTV more quickly.

Remember, your LTV isn’t just a number – it’s a dynamic aspect of your mortgage that you can actively manage.

Is a 95% LTV Mortgage Realistic in the UK?

Yes, you can get a 95% LTV mortgage in the UK, particularly if you’re a first-time buyer with a small deposit. 

Many lenders offer them, especially since the government introduced the Mortgage Guarantee Scheme last 2021. 

However, be prepared for higher interest rates and stricter requirements, like a better credit score or higher income. 

You’ll also have fewer mortgage products to choose from compared to if you put down a bigger deposit.

There’s a bigger chance of your home falling into negative equity (being worth less than your mortgage) if you only put down 5% initially. 

Some government schemes can help, but starting with a 95% LTV mortgage can make it harder to remortgage later, especially if property prices drop.

While these mortgages can help you buy a home sooner, they come with risks and higher costs. 

Saving for a larger deposit is usually better as it gives you access to lower interest rates and more mortgage options. But if a 95% LTV mortgage is your only option, make sure you understand all the terms and consider talking to a mortgage advisor.

What is the Ideal LTV for Buy-to-Let Mortgages?

Unlike regular mortgages, buy-to-let mortgages typically favour a lower LTV, ideally 75% or less. 

This is because lenders see them as riskier investments.

Most buy-to-let lenders require at least a 25% deposit (75% LTV), and they often want your expected rental income to cover 125-145% of your mortgage payments. 

A lower LTV makes it easier to meet this criteria.

While some lenders offer 80% or even 85% LTV buy-to-let mortgages, these are less common and come with steeper interest rates. 

Many landlords find a sweet spot around 60-65% LTV, balancing the deposit amount with attractive interest rates.

Remember, every situation is unique. The ideal LTV for you will depend on your finances, the property itself, and your long-term investment goals.

Does LTV Change Over Time?

Yes, your LTV can change over time due to two main factors:

1. Paying off your mortgage – As you make payments, your loan balance decreases, lowering your LTV.
2. Changes in property value – If your property’s value increases, your LTV decreases (and vice versa).

For example, if you have a £150,000 mortgage on a £200,000 property (75% LTV), and you pay off £10,000 of the mortgage, your new LTV would be 70% (140,000 / 200,000 x 100).

Or, if your property’s value increased to £220,000, your LTV would decrease to about 68% (150,000 / 220,000 x 100), even without paying off any of the mortgage.

How To Get a Lower LTV?

Achieving a lower LTV can open doors to better mortgage deals. Here are some strategies:

1. Save a bigger deposit – The more you can put down upfront, the lower your LTV will be.
2. Buy a cheaper property – If you opt for a less expensive home, your deposit will represent a larger percentage of the property value.
3. Make overpayments – If your mortgage allows, making overpayments can help reduce your LTV faster. Check how much you should overpay in your mortgage here.
4. Wait for your property to increase in value – If you’re not in a rush, property price increases can naturally lower your LTV.
5. Home improvements – Sensible renovations can increase your property’s value, potentially lowering your LTV.

The Pros & Cons of Having High/Low LTVs

Like most things in finance, there are pros and cons to both high and low LTVs. Let’s break them down:

High LTV (typically 90% or above):

Pros:

• Allows you to buy a property with a smaller deposit
• Can help you get on the property ladder sooner
• Might enable you to buy a more expensive property than you could otherwise afford

Cons:

• Higher interest rates
• Fewer mortgage products to choose from
• Higher monthly payments
• Greater risk of negative equity if property prices fall

Low LTV (typically below 80%):

Pros:

• Access to better interest rates
• More mortgage products available
• Lower monthly payments
• Less risk of negative equity
• Potential for better remortgage deals in the future

Cons:

• Requires a larger deposit, which can take longer to save
• Might mean buying a less expensive property or waiting longer to buy

The Bottom Line

Understanding LTV is key when you’re in the mortgage market. It affects not just whether you can get a mortgage, but also the terms.

Remember, while a lower LTV generally puts you in a stronger position, it’s not the only factor lenders consider. 

Your income, credit score, and overall financial situation ALL play a part. 🤓

If you’re looking to buy a property or remortgage, start by using our LTV calculator to understand your position. ⬆️

Then, consider speaking with a qualified mortgage advisor who can give you personalised advice based on your circumstances.

Need a good mortgage broker? Get in touch. We’ve partnered with whole-of-market, FCA-qualified brokers who can help solve your mortgage dilemmas. 

Whether you’re a first-time buyer, remortgaging, or looking into buy-to-let options, our brokers have the know-how and access to a wide range of products. 

They’ll guide you through the process and find the BEST deals for you.

Just fill out our contact form or give us a call, and we’ll connect you with a broker who can offer personalised advice and support.

FAQs

Is it better to have a high or low LTV?

Generally, a lower LTV is better. It typically means you can access better mortgage rates and have more products to choose from. 

However, a higher LTV isn’t necessarily bad – it can help you get on the property ladder sooner. 

The best LTV for you depends on your individual circumstances and financial goals.

How to calculate LTV when remortgaging?

Calculating LTV when remortgaging is similar to when you’re buying a property. You’ll need two key pieces of information:

1. The current value of your property
2. The amount you want to borrow (usually your outstanding mortgage balance)

Then, use this formula:

LTV = (Amount you want to borrow / Current property value) x 100

For example, if your home is worth £300,000 and you have £180,000 left on your mortgage:

LTV = (180,000 / 300,000) x 100 = 60%

Remember, your property’s value may have changed since you bought it, which could affect your LTV. If you’re not sure of the current value, you might need to get a new valuation.

By understanding and using LTV calculations, you’re equipping yourself with a powerful tool in your property and mortgage journey. 

Whether you’re a first-time buyer, moving home, or remortgaging, knowing your LTV can help you make more informed decisions and potentially save you money in the long run.