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  • Writer's pictureTara Ghose - Mortgage & Protection Adviser

Loan To Value

Updated: May 22, 2023

When it comes to securing a mortgage in the UK, one of the key factors lenders consider is the loan to value (LTV) ratio. The LTV plays a vital role in determining the interest rate you'll pay and the borrowing amount you can obtain. In this blog post, we'll delve into the significance of LTV ratios and shed light on how they influence the terms of your mortgage. By understanding this crucial aspect, you'll be better equipped to navigate the mortgage market and make informed decisions.

What I Loan To Value?

The loan to value ratio is a percentage that represents the ratio of the mortgage amount to the appraised value or purchase price of the property you intend to buy or remortgage. Lenders use this ratio to assess the risk associated with a mortgage application. The higher the LTV, the greater the perceived risk for the lender.

Impact On Interest Rates: Lender offer different interest rates based on the LTV ratio. A lower LTV typically translates to more favourable interest rates, as it indicates a smaller loan amount relative to the property value. Lenders perceive lower LTV as less risky, and therefore, the can offer borrowers more competitive interest rates. On the other hand, a higher LTV implies a greater loan amount compared to the property value, which increases the risk for the lender. Consequently, higher LTV ratios are often associated with higher interest rates.

Borrowing Amount: LTV ratios can also influence the maximum borrowing amount some lenders are willing to provide. In certain cases, lenders may offer a higher income multiple for mortgages with lower LTV ratios.

Managing LTV Ratios: To secure a more favourable interest rate and potential borrowing amount, it's essential to manage your LTV ratio affectively. Here are some strategies to consider:

  1. Save for a larger deposit: By increasing your deposit, you can lower the LTV ratio. Lenders often offer better terms to borrower with lower LTV ratios, so saving for a larger deposit can lead to more favourable interest rates and borrowing options.

  2. Property valuation: Consider obtaining an accurate property valuation to ensure that the LTV is calculated based on the actual market value. A higher valuation can reduce the LTV ratio and potentially improve your borrowing options.

  3. Mortgage term: Shortening the mortgage term can help lower the LTV ratio faster. Making extra repayments or opting for a shorter loan duration can reduce the loan amount, thereby decreasing the LTV ratio.

  4. Equity growth: Over time, if your property value increases, your LTV ratio naturally decreases. Conversely, a decrease in property value can elevate your LTV and potentially lead to negative equity.

Conclusion: Loan to value ratios play a significant role in determining the interest rates and borrowing amounts offered by lenders for UK mortgages. Lower LTV ratios generally result in more favourable interest rates and potentially higher borrowing amounts, as the indicate a smaller loan amount relative to the property value. Managing your LTV by saving for a larger deposit, considering property valuations and shortening the mortgage term can help you secure a mortgage with better terms.

By consulting with our experienced advisers, we can demonstrate the impact on your interest rate, monthly payments and borrowing capacity by considering various deposit sizes and mortgage terms.


Approved by The Openwork Partnership on 22/05/2023

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