Loan-to-value (LTV)

The ratio and what it expresses

Loan-to-value (LTV) expresses the size of a secured loan as a proportion of the value of the asset securing it. For a mortgage, it is the loan amount divided by the property's value: a borrower taking a £180,000 mortgage on a £200,000 home has a 90% LTV. The remaining portion is the borrower's equity or deposit. LTV is one of the most important single figures in secured lending because it captures, in one number, how much cushion the lender has if the asset must be sold.

The concept is not confined to mortgages. It applies to any lending secured against an asset, including asset finance and some SME lending, though mortgages are where UK lenders and borrowers encounter it most often. The lower the LTV, the more equity sits beneath the loan, and the more protected the lender is against a fall in the asset's value.

Why LTV drives pricing and risk

LTV directly affects the lender's exposure in a default scenario. If a borrower cannot repay and the property is repossessed and sold, the lender recovers from the sale proceeds. At a low LTV there is ample equity to absorb a price fall, sale costs and any shortfall in achieved price. At a high LTV, even a modest decline in property values can leave the outstanding balance close to or above the sale proceeds, raising the risk of a loss.

This is why LTV bands shape mortgage pricing. Lenders typically offer their keenest rates at lower LTVs and charge more as LTV rises, reflecting the greater risk. Products are commonly structured around thresholds, so a borrower who can cross from one band into a lower one, by increasing their deposit or as their equity grows, can access materially better terms.

• Lower LTV generally means lower interest rates and wider product choice
• Higher LTV attracts higher pricing to reflect thinner equity cover
• Products are often tiered around round-number LTV thresholds

LTV alongside affordability

It is important to see LTV as only one half of responsible secured lending. LTV measures the security position: how well the loan is covered by the asset. Affordability measures something different: whether the borrower can actually meet the repayments from income over the life of the loan. A loan can be low-risk on LTV yet unaffordable, or affordable yet high on LTV.

UK regulation requires lenders to assess affordability properly, not to rely on the security alone. The FCA's mortgage conduct rules expect lenders to verify income and assess whether repayments remain affordable, including under plausible interest-rate stress. LTV tells the lender how much is at stake if things go wrong; affordability assessment is what reduces the chance of them going wrong in the first place.

How value is established and kept current

An LTV figure is only as reliable as the valuation beneath it. Lenders establish the asset's value through valuation methods ranging from automated valuation models to physical surveys, with the approach chosen according to the risk and the LTV involved. Higher-risk or higher-LTV lending typically warrants a more thorough valuation.

LTV is also dynamic. As a borrower repays capital and as property values move, the effective LTV changes over time. This matters for remortgaging, further advances and portfolio monitoring: a borrower whose equity has grown may qualify for better terms, while a lender watching its book needs to understand how falling values could lift LTVs across a portfolio and change its risk profile.