LTV explained: how much can you borrow to buy a home?

What is LTV?

LTV stands for loan to value. It’s a percentage lenders use to describe how much of a property’s total value you're borrowing with a mortgage.  For example, if you're buying a £250,000 home and borrowing £225,000, your LTV is 90%. The remaining £25,000 (10%) is your deposit.

In general, the lower your LTV, the better the mortgage rates you're likely to be offered. That's why saving a larger deposit can really pay off. 

How does LTV work?

The more you put down upfront, the less you need to borrow. So your deposit can reduce your LTV. The bigger your desposit, the lower your LTV becomes.

How much should you save for a deposit?

Most lenders ask for at least a 10% deposit to be able to get a mortgage. But some schemes and lenders do accept lower deposits, especially for first time buyers. 

That said, saving a bigger deposit can work in your favour. With a lower LTV you might:

• Be more likely to be approved for a mortgage.
• Get access to deals with lower interest rates.
• Pay less overall over the life of your mortgage.

If you can save a deposit that’s more than 10% of the property’s value your LTV would be lower. And this could help you access better mortgage deals. You can lower your LTV by:

• Saving a bigger deposit
• Choosing a less expensive property

Why LTV matters when you remortgage

LTV doesn't just affect your first mortgage. It's also key when you remortgage later on. In the future, your LTV will be calculated based on your property's value at the time you re-mortgage. 

• If your home's value increases, your LTV goes down. This can potentially help you access better mortgage deals.
• If your home's value drops, your LTV goes up. In some cases you may fall into negative equity (where you owe more than your home is worth). 

Keeping an eye on your LTV over time can help you make smart mortgage decisions later down the line.