Loan-to-value, or LTV, is one of the most important numbers in mortgages, because it largely determines the rates you are offered. This guide explains what loan-to-value is and why it matters: how it is worked out, the bands lenders use, how your deposit and your home's value affect it, and what happens in negative equity.
What loan-to-value is
Loan-to-value is the size of your mortgage expressed as a percentage of the property's value. If you borrow £150,000 against a home worth £200,000, your loan-to-value is 75%. The remaining 25% is your equity, the part you own outright. LTV measures how much of the property is financed by the mortgage versus your own money, and it is central to how lenders price and assess your mortgage.
An example
Suppose you buy a £250,000 home with a £50,000 deposit and a £200,000 mortgage. Your loan-to-value is £200,000 divided by £250,000, which is 80%. If instead you put down £62,500, your mortgage would be £187,500 and your loan-to-value 75%. The bigger your deposit, the lower your loan-to-value, which, as the next sections explain, can unlock better rates.
Why it matters
Loan-to-value matters because lenders offer better rates at lower LTVs. A lower LTV means more equity and less risk for the lender, so they reward it with cheaper deals. This is why a bigger deposit, giving a lower LTV, leads to lower rates, as our guide to deposits explains. Even a small reduction in LTV can move you into a better rate band and save money.
The LTV bands
Lenders price their deals in LTV bands, commonly at 95%, 90%, 85%, 80%, 75% and 60%. Each step down typically brings a lower rate, with the best rates usually at 60% LTV or below. So crossing from one band into a lower one, by putting down more deposit or as your equity grows, can reduce the rate you are offered. Knowing the bands helps you see the benefit of a slightly larger deposit.
How your deposit affects it
Your deposit directly sets your loan-to-value at purchase: the larger the deposit, the lower the LTV. This is why saving a bigger deposit, or crossing a band threshold, can be worthwhile, as it can unlock a better rate as well as reducing the amount you borrow. Even a little more deposit, if it takes you into a lower band, can improve the deals available to you.
How value and balance changes affect it
After purchase, your loan-to-value changes as you pay down the mortgage and as your home's value moves. Paying off capital reduces the loan, and a rise in value increases the property figure, both lowering your LTV, as our guide to how a higher value lowers your LTV explains. This is why remortgaging after building equity can move you into a better band and a lower rate.
Negative equity
If your mortgage is larger than your home's value, your loan-to-value exceeds 100% and you are in negative equity. This can happen if prices fall, especially with a small original deposit. Negative equity makes it hard to remortgage or sell, since the sale would not clear the mortgage. While uncommon, it shows why a reasonable deposit and equity cushion matter, as our guide to how mortgages work notes.
Higher LTV, higher rate
The reason rates rise with loan-to-value is risk. A higher LTV means the lender has lent a larger share of the property's value, so a fall in prices is more likely to leave them exposed. To compensate, they charge a higher rate. This is why a 95% deal costs more than a 60% one, and why reducing your LTV, even by a band, can meaningfully lower your rate.
First-time buyers and high LTV
First-time buyers often borrow at higher loan-to-values, since saving a large deposit is hard, as our guide to low-deposit mortgages explains. A 95% mortgage means a 95% LTV and a higher rate, but it allows people to buy sooner. Understanding LTV helps first-time buyers see the trade-off between buying with a small deposit now and saving more for a lower LTV and rate.
Crossing a band with a bigger deposit
Because rates step down at band thresholds, adding a little more deposit to cross into a lower band can be worth more than the deposit itself, by unlocking a cheaper rate. For example, finding a bit extra to move from 81% to 80% LTV could reduce your rate. It is worth checking where the band thresholds fall, as a small extra deposit can pay off through a better rate.
LTV and remortgaging
Loan-to-value matters at remortgage too. As you repay the loan and your home's value changes, your LTV falls, potentially into a better band, letting you remortgage onto a cheaper rate, as our guide to how a higher value lowers your LTV explains. Knowing your current LTV helps you judge whether remortgaging might unlock a better deal than your original one.
LTV in buy-to-let
Loan-to-value applies to buy-to-let too, where the maximum is usually lower, around 75%, requiring a larger deposit, as our guide to the buy-to-let deposit explains. As with residential, lower buy-to-let LTVs bring better rates. So whether buying a home or a rental, the same principle holds: a lower loan-to-value means more equity, less risk and cheaper borrowing.
Keeping an eye on your LTV
It is worth knowing roughly where your loan-to-value sits, since it changes over time and affects your options. As you repay and as values move, you may cross into a better band, making a remortgage worthwhile. A quick estimate, your balance divided by your home's current value, tells you your LTV. Keeping half an eye on it means you can act when you reach a threshold that could unlock a better rate.
Why a deposit buffer helps
Buying with a reasonable deposit, rather than the absolute minimum, gives a lower loan-to-value, a better rate, and a buffer against price falls that could otherwise push you towards negative equity. While buying with a small deposit lets you get on the ladder sooner, a larger one brings real advantages, which is why balancing buying now against saving a bit more is a key early decision for buyers.
Keep loan-to-value in mind throughout your time as a homeowner, since it quietly shapes the rates you are offered at every purchase and remortgage, and small improvements to it, through a larger deposit, steady repayment or a rise in value, can translate into real savings on your rate.
For most buyers and homeowners, getting to grips with this single percentage is one of the most useful things they can do to understand and improve the cost of their mortgage.
In short
Loan-to-value is your mortgage as a percentage of the property's value, with the rest being your equity. It matters because lenders offer better rates at lower LTVs, in bands such as 95%, 90%, 80%, 75% and 60%. A bigger deposit gives a lower LTV and better rates, and your LTV falls as you repay the loan or your home rises in value. If the loan exceeds the value, you are in negative equity.
Where to get help and next steps
Read our guides to deposits and loan-to-value, how a higher value lowers your LTV, and how a mortgage works. This is general information, not mortgage or financial advice.