What is LTV and why does it affect your mortgage?

LTV, or Loan to Value, is the difference between the value of your new house and the mortgage you plan to borrow.

Therefore, if a property is valued at £100,000 and the buyer has a £75,000 mortgage, the LTV is 75%.

Usually, the lower the LTV, the lower the rate of interest.

LTVs are usually calculated in bands of 5%, and the pricing difference between them can be substantial. For example, the difference in the interest rate between a 5% and 10% deposit can be over 1% higher. This means if you are close to the point where one band turns into another, and can pay off a lump sum, you could qualify for a better rate and save thousands of pounds over the life of your mortgage.

More recently, LTV limits have relaxed, and lenders are willing to lend at 95 or even 100% providing the customer has a good credit record, income and passes all of the lenders other criteria.

However high LTV lending is considered higher risk, so lenders price their mortgage deals according to risk.

A customer borrowing 95%, can pay a rate of over 2% more interest than a customer borrowing 60%.

Normally, as the LTV increases, so does the interest rate.

Check our mortgage calculator for some more examples.


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