What is loan-to-value (LTV) and why does it matter?
Quick answer: Loan-to-value is the single biggest factor in the rate you pay on a mortgage, after the Bank of England base rate.
Loan-to-value is the single biggest factor in the rate you pay on a mortgage, after the Bank of England base rate. It is your mortgage as a percentage of the property's value, and lenders price into discrete bands — so dropping just below the next breakpoint can cut your rate by 0.20–0.60%. On a typical £250,000 mortgage that's £40–£125 a month, and several thousand pounds across a 5-year fix. Knowing where the bands sit before you choose your deposit, overpay, or remortgage is therefore one of the highest-value bits of homework in the whole mortgage process.
Last reviewed:
Primary source: fca.org.uk/firms/mortgages
How LTV is calculated
Loan-to-value is the size of your mortgage expressed as a percentage of the property value. A £180,000 mortgage on a £225,000 property is 80% LTV; a £190,000 mortgage on the same property is 84.4% LTV.
Lenders use the lower of the agreed purchase price and their own valuation. If the property 'down-values', your LTV rises and you may need a bigger deposit, or to accept a higher rate.
Where the price bands sit
Most lenders price into bands: 95%, 90%, 85%, 80%, 75%, 65% and 60% LTV are the most common breakpoints. The price drop between 75% and 60% LTV is often the biggest — frequently 0.30–0.60%.
On a £250,000 mortgage, 0.40% off the rate saves around £55 a month and around £1,000 in the first year alone — usually well worth a slightly bigger deposit if you can manage it.
LTV at remortgage
When you remortgage, the lender values the property again. If the value has risen, your LTV falls and you may qualify for a cheaper band even without overpaying.
Conversely, in a falling market your LTV can rise — possibly forcing you onto a more expensive product or, in extreme cases, onto the lender's standard variable rate.
Worked example — should you overpay to drop a band?
Someone with a £200,000 mortgage on a £250,000 property is at 80% LTV. The 75% band is £187,500 — a £12,500 overpayment away. If the 75% LTV 5-year fix is 0.25% cheaper than the 80% rate, the saving over the fix is roughly £200,000 × 0.25% × 5 = £2,500.
Spending £12,500 to save £2,500 is not, in isolation, a winning trade — but the overpayment also reduces the balance you're paying interest on for the next 5 years, and the lower LTV unlocks cheaper rates again at the next remortgage. Run the maths on a calculator with your actual rates before committing.
Critically: check the early repayment charge on your existing deal. ERCs typically taper from 5% in year one to 1% in year five and can wipe out the gain.
Down-valuations and how to push back
A 'down-valuation' is when the lender's surveyor values the property below the agreed price. This pushes LTV up and may either force a higher deposit, a more expensive product, or the deal to fall through.
Options if it happens: renegotiate the price with the seller using the surveyor's report as evidence; pay the gap from savings; switch to a lender whose panel surveyor takes a different view; or instruct a second valuation through a different lender.
Most surveyors are RICS-regulated. Challenges are possible but rarely succeed unless you can produce comparable sold-price evidence (Land Registry data) the surveyor missed.
Common questions
- What is a good LTV?
- There is no single 'good' figure — but most lenders' best rates are at 60% LTV or below. 75% is the next best band; 95% is the most expensive (and not every lender offers it).
- Should I overpay to drop an LTV band before remortgaging?
- Often yes, if the saving is large enough and the early repayment charge on your existing deal allows it. Run the calculation with the next band's typical rate before committing — a small lump sum can save thousands over the next fixed period.
- Does the deposit come from anywhere?
- Most lenders accept savings, equity from a property sale, or a 'gifted' deposit from a close family member (with a signed gift letter). Borrowed deposits (e.g. a loan) are usually not allowed.
- Does the lender use the asking price or the surveyor's valuation?
- The lower of the two. If you offered £260,000 and the surveyor values at £250,000, LTV is calculated on £250,000 — so the same cash deposit results in a higher LTV than you expected.
- Do home improvements raise the lender's valuation at remortgage?
- Sometimes, but only if they are reflected in comparable sold prices in your area. A new kitchen alone rarely shifts a surveyor's valuation; an extension that adds floor area usually does.