What is Loan to Value?

If you’re looking for a mortgage in Lancashire, Preston, or Southport, you’ve probably come across the term Loan to Value, often shortened to LTV. But what does it actually mean, and why does it matter when you’re buying a home or looking to remortgage? Let’s break it down in simple terms.

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Understanding Loan to Value

Loan to Value is a way of showing how much you’re borrowing compared to the value of the property. Think of it as a percentage. For example, if you’re buying a house for £200,000 and you’ve saved a £10,000 deposit, you’ll need to borrow £190,000. That means your LTV is 95%, because you’re borrowing almost 95% of the properties value.

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Why Does Loan to Value Matter?

Lenders use LTV to work out risk. The higher the LTV, the more risk for them, because you’re putting in less of your own money. This usually means higher interest rates for you. On the flip side, if you have a lower LTV, you’re seen as less risky, and you could get a better deal with lower rates.

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How to Work Out Your LTV

It’s easy to calculate. Divide the amount you’re borrowing by the property’s value, then multiply by 100 to get a percentage.

Here’s an example:

• Property value: £350,000
• Deposit: £35,000
• Mortgage amount: £315,000

Now divide £315,000 by £350,000, which gives 0.9. Multiply by 100, and your LTV is 90%.

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Loan to Value Brackets Explained

Lenders group LTV into brackets, usually starting at 95%, then 90%, 85%, 80%, and so on. Each time you drop into a lower bracket, you could unlock better rates.

For example, if you’re buying a £100,000 property with a £9,000 deposit, your LTV is 91%, which still falls in the 95% bracket. But if you increase your deposit to £10,000, your LTV drops to 90%, and you move into the next bracket, which could mean a cheaper deal.

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Why It’s Important for First-Time Buyers and Remortgages

If you’re a first-time buyer in Lancashire, you might start with a high LTV because deposits are hard to save. That’s normal, but keep in mind that even a small increase in your deposit can make a big difference.

For those looking for remortgage  your LTV will depend on how much equity you’ve built up. If your property has gone up in value or you’ve paid down your mortgage, your LTV could be much lower than when you first bought, which means better rates.

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Tips to Improve Your LTV

• Save a bigger deposit if you can
• Consider using a gifted deposit from family
• Keep an eye on your property’s value
• Pay down your mortgage before remortgaging

Even small changes can help you move into a better bracket.

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Summary

Loan to Value is simply the percentage of your mortgage compared to your property’s value. It matters because it affects the deals you’re offered. Lower LTV usually means lower rates, so whether you’re a first-time buyer in Preston, a home mover in Southport, or looking for remortgage advice in Lancashire, understanding LTV can help you make smarter decisions.

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Ready to Talk About Your Options?

We offer free initial consultations with no obligation. You can book a face-to-face appointment at our Tarleton office in Preston, or choose a remote or telephone appointment at a time that suits you, including evenings.

If you’d like friendly, expert advice from a local mortgage broker in Lancashire, get in touch today. We’re here to help first-time buyers, home movers, and anyone looking for remortgage advice.

 

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT