LTV Calculator: Results in Seconds & What Loan to Value Really Means
LTV or Loan to value is a term you’ll often hear when buying or investing in property.
The loan to value definition is simply:
the ratio between the sum of money lent in a mortgage agreement and the lenders valuation of the property involved
source: Collins dictionary
It is one of those property investment terminologies that you will hear often, when speaking with mortgage brokers and property investment companies.
Below is our free loan to value calculator that you can use to get your results in seconds, as well as insights on what loan to value means, and what average LTVs are typical in the current property market cycle.
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by Robert Jones, Founder of Property Investments UK
With two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
How to Calculate Your Loan-to-Value (LTV)
In simple terms, LTV is determined by subtracting your deposit from the property's value to find the amount you need to borrow, dividing that by the total property value, and then multiplying by 100 to obtain a percentage.
Use our LTV Calculator below to quickly work out your LTV and better understand how it might affect your mortgage options.
LTV Calculator
Why Loan-to-Value Matters
Banks and building societies will normally only lend a proportion of what a property is worth. The relationship between what a property is worth and what will be lent to buy it is what the loan to value ratio is.
Calculating your desired loan to value ratio is a crucial part of your investment property checklist and budget planning. Understanding this before you begin property viewings helps you create a focused shortlist of properties within your price range.
Imagine you're stepping into the property market, excited about your new home or investment, here are two scenarios for the same property.
Scenario 1
For example, if you’re buying a property worth £200,000 and have a £50,000 deposit, you will need a mortgage of £150,000.
Your LTV ratio would be calculated as follows:
Property value - £200,000 minus
Deposit - £50,000
Require mortgage amount = £150,000
LTV Calculation - £150,000 ÷ £200,000 x 100 = 75% LTV ratio
Scenario 2
In contrast, if your deposit is only £10,000 on the same £200,000 property, you’d need to borrow £190,000, resulting in an LTV ratio of 95%.
Note: The amount you use as a deposit for the property will impact the mortgage options available, as well as the interest rates you will pay.
What is an Average LTV for a Mortgage?
Understanding how lenders use LTV to decide and manage their lending policy can often help you get a better deal when looking for mortgages and finance for property investment.
Lenders generally equate LTV with risk. As a result, LTV normally has a direct impact on the interest rate you’ll pay on your mortgage to account for that risk.
Low LTV loans are seen as safer by lenders: As a result, low LTV mortgages usually have the lowest interest rates.
High LTV loans are seen as having more risk: Lenders consider those borrowing a high proportion of the value of their property are more likely to be stretching their finances, and so more likely to run into difficulties making the repayments.
Lenders are also aware that if property prices fall borrowers with a high LTV loan could actually owe more than the value of the property they have bought. This is known as negative equity which makes it difficult if you wish to sell or refinance the property in the future.
Many lenders have higher LTV requirements for buy-to-let mortgages than they do for standard residential mortgages as they may consider this type of lending riskier and the rates and lower average loan to values reflect this.
You can check out mortgage rates here for both owner occupier and buy-to-let properties.
On average, loan to value mortgages are available up to 90% LTV for home-owners and 75% LTV for buy-to-let investment properties.
note: It is important to consider that LTV is only one part of the criteria banks and lenders consider with buy-to-let properties. Another requirement is having suitable cashflow and a suitable rental yield. To help you with this next step, our rental yield calculator here, can help you determine your rental yield for the same property.