Loan to value calculator

Introduction to Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio is an important concept for anyone taking out a mortgage in the UK. The LTV ratio compares the amount you wish to borrow for your mortgage to the value of the property you want to buy.

Specifically, the LTV ratio is calculated by dividing the mortgage amount by the property’s value, and expressing that as a percentage. For example, if you wanted to buy a £200,000 property and needed a mortgage of £160,000, your LTV would be:

Mortgage Amount ÷ Property Value x 100
£160,000 ÷ £200,000 x 100 = 80%

So in this case, your LTV ratio would be 80%. The higher the LTV ratio, the more risk for the lender. A lower LTV usually allows you to access better mortgage rates and deals.

Calculating Your LTV Ratio

At the top of this page is an LTV calculator you can use to easily determine your loan-to-value ratio. Simply input the property value and mortgage amount, and it will instantly calculate the LTV percentage for you.

For example, for a property valued at £250,000 that requires a £100,000 mortgage, the calculator would show:

Property Value: £250,000
Mortgage Amount: £100,000  
Your Loan to Value ratio is: 40%

You can also calculate your LTV manually using this simple formula:

Mortgage Amount ÷ Property Value x 100

So in the above example, you would calculate:

£100,000 ÷ £250,000 x 100 = 40% LTV

The loan-to-value ratio compares how much you need to borrow to the total property value. The lower the LTV, the more favorable mortgage rates you can qualify for since you pose less risk to lenders.

The Importance of Mortgage LTV Calculation

It’s important to calculate your LTV ratio because it gives you an indication of how much deposit you will need, and what mortgage deals you are likely to be eligible for.

Lenders see a lower LTV (below 80%) as less risky, meaning you’re more likely to get approved for a competitive mortgage rate. An LTV above 80-85% is generally seen as riskier by lenders.

Your LTV ratio also determines whether you’ll need to pay mortgage insurance. This adds to your costs, so a lower LTV that avoids this fee is preferable.

Implications of a High LTV Ratio

If your LTV ratio is above 80-85%, indicating you have a small deposit compared to the property value, you may face the following implications:

• Fewer mortgage options – You won’t have access to more competitive lower LTV mortgage rates
• Higher interest rates – Lenders will charge you more as you are seen as higher risk
• Mortgage insurance fees – You may need to pay this insurance which could be 1-2% of the loan amount

A high LTV mortgage isn’t necessarily bad if you manage it properly. However, be aware you’ll likely pay more over the lifetime of your loan.

LTV for Different Types of Mortgages

Your LTV requirements can vary slightly depending on the mortgage type:

• Conventional mortgages – Up to 85-90% LTV available
• Buy-to-let mortgages – Usually max 75% LTV
• First time buyer mortgages – Often 90-95% LTV available
• Bad credit mortgages – Can get 90-95% LTV or higher

Speak to a mortgage advisor or broker to find out the LTV thresholds for your specific situation.

How Property Value Changes Affect LTV

As your property value changes over time, this can affect your loan-to-value ratio.

If property prices fall and the value of your home decreases, your LTV would rise. This could mean you have less equity and potentially negative equity.

Conversely, if property values increase, your equity share rises and LTV decreases. This can open up better mortgage refinancing options.

It’s important to monitor shifts in your property’s value and how they impact your equity and loan-to-value.

Optimal LTV Ratios for Favorable Mortgage Terms

While mortgages up to 95% LTV are available, you’ll get the best rates and mortgage deals when your LTV is low. Here are some optimal LTVs to aim for:

• 60% LTV or less – Gives you access to the very best mortgage interest rates
• 75% LTV or less – Also considered a good ratio by most lenders
• 80% LTV or less – You’ll avoid paying mortgage insurance
• 85% LTV or less – Opens up wider selection of mortgage products

The lower you can get your LTV, the better mortgage terms you can expect.

LTV and Mortgage Interest Rates

Your loan-to-value ratio is directly linked to the mortgage rates lenders will offer you.

The higher your LTV:

• The higher mortgage rate you’ll pay
• The fewer lenders willing to approve your loan

With a lower LTV (ideally under 80%), you’ll qualify for lower interest rates giving you cheaper monthly repayments.

Navigating High LTV Mortgages

If you have a small deposit saved relative to the property purchase price, you may need to take out a high LTV mortgage above 80-85%.

Here are some tips for getting approved and finding the best high LTV deal:

• Get advice from a mortgage broker experienced in high LTV lending
• Be prepared to pay mortgage insurance fees in your payments
• Make sure you have a good credit score to increase chances of approval
• Consider a longer mortgage term so repayments are affordable each month

Conclusion

Your loan-to-value ratio is key to getting approved for a mortgage at favorable rates. By understanding your LTV, seeking advice from mortgage brokers, and using LTV tools, you can find the best mortgage deal for your situation.

Aim for the lowest LTV possible, but even if you can only manage a 90-95% LTV, be reassured there are still mortgages available with proper planning.