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Mortgage Loan to Value Calculator

The chances are that you are reading this Mortgage guide because you are doing your homework in reperation for buying a new home and keep encountering the term Loan to value or seeing the Letters LTV displayed after mortgage deals or in mortgage offers when comparing mortgages.

Loan to Value (LTV) is actually a very simple calculation:

LTV = pp - mr

where

  • LTV = Loan to Value
  • pp = Property Price
  • mr = Mortgage Required

So, a maximum LTV of 90% is basically the same as saying a minimum of 10% deposit required, at the end of the day, they equate to the same figure. Most homebuyers prefer to work in real terms they understand, the deposit amount is a more practical figure to focus on as this is a target that you need to save to achieve the next step of buying a home.

Our loan to value calculator also has an input field for you to enter the current deposit you have saved. This will then provide the deposit as a percentage of the property price and calculate how much more you have to save to meet the Loan to Value requirement (or minimum deposit requirement depending on your preference).

Loan to Value Mortgage Calculator
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Loan to Value Mortgage Calculator
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Deposit to Value
Loan to Value associated calculations
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Understanding Loan to Value

As the loan to value calculator above demonstrates, the loan to value calculation is very simple. As with most financial products, finance specialists like to use acronyms wherever possible. Whilst this may be practical for their day-to-day financial discussions it can make it difficult for the consumer who may in turn feel misled or confused about the mortgage products. Particularly if one mortgage product requires a minimum deposit of 10% and the other is advertised as mortgages from 90% LTV. As we have explained a 90% LTV (loan to value ratio) is the same as a 10% deposit.

Here are some other phrases or terms which you may encounter:

  • Entry level loan to value mortgages: This means that the mortgage lender offers mortgages that cover up to 95% of the property price. In positive economic times when the property market is buoyant it is possible to achieve a 100% loan to value though they are increasingly rare to secure since the 2009 banking crisis.
  • High loan to value mortgages available This means that the mortgage lender offers a range of mortgage products are differing LTV rates, typically 95% entry level and below for homebuyers through to 60% LTV and below for buy-to-let mortgages.

Loan to Value mortgage products, what's the difference?

In simple terms, the lower the loan to value ratio is:

  1. The higher the deposit you will need to raise
  2. The better the rate of interest you are likely to achieve

Why do mortgage lenders offer lower interest rates with at lower loan to value ratios?

Lending money is all about risk. The risk in this instance is all about whether you, the mortgage borrower will repay the mortgage and interest payments so that the mortgage lender makes a profit. You may be thinking that the risk is the same regardless of how much you borrow. Sadly, that isn't true, let's look at why.

When mortgage lenders look at lending you money in the form of a mortgage, they look at the following factors:

  1. Property market: Are prices going up or down? Is demand growing or reducing? How many houses are likely to be built over the next x-years? (Note: an increase in property availability can reduce demand and, in turn, reduce house prices)
  2. UK Economy: How well is the UK performing? Is the performance likely to lead to significant changes in interest rates (short, mid and long term)
  3. Global Economy: How well is the global economy performing, particularly those that the UK Imports from and exports to. Is the performance of those markets stable? Are their any performance issues likely to lead to significantly impact the UK economy (short, mid and long term)
  4. Salary Trends: Many don't realise but a positive trend in salary growth increases mortgage lender confidence as they can forecast that, with time, your ability to repay your mortgage will become increasingly easier as your salary grows.
  5. Your credit score and credit history: It goes without saying that if you have a poor credit score and poor credit history that you will struggle to obtain a mortgage and, if you do, it will most likely not be at a favourable rate. The reverse applies, good credit score + good credit history = better mortgage offers and access to higher loan to value mortgage borrowing.
  6. Government legislation: Is the government creating legislation that will affect the trend of house buying or cost of houses? Will property related taxes increase or decrease?

from the factors above, mortgage lenders will first define a baseline risk factor that applies to all their mortgage products, this will typically provide a range for each product. The range covers differing levels of risk generated by the borrower (you) specifically in relation to financial status (current, historical and future). Our Mortgage Deposit Calculator contains a gauge which visually illustrates the risk and associated interest rates you could achieve depending on the size of your deposit (which we now know is directly related to the loan to value ratio).

Loan to value summary

As discussed above loan to value is a ratio use to specify the amount of mortgage you need in relation to the property purchase price. In direct reverse, the minimum deposit required is the ratio of deposit size to property purchase price. Loan to value ratios differ depending on the risk as measured and defined by mortgage lenders, the higher the risk, the higher the loan to value you are likely to achieve meaning higher interest rates. The lower the risk you are and higher deposit you have, the smaller the loan to value ratio and better your chances of securing a good mortgage deal with low interest rates.

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