How to calculate loan-to-value (LTV)?
If you’re considering a secured homeowner loan or you’re looking to remortgage your home, knowing your Loan-to-Value ratio and how to calculate it is important. LTV is used by lenders and is an essential factor for determining eligibility and terms for a loan.
In this guide, we’ll explain:
- What Loan-to-Value is
- How to work out LTV
- Why LTV is important
- How LTV affects loan applications
- How to improve your LTV
If you need any guidance on Loan-to-Value rates, second charge loans or borrowing in general, our Help & Advice page can help you learn more.
What is Loan-to-Value (LTV)?
Loan-to-Value (LTV) is the percentage value of your property that’s financed when you take out a loan. LTV compares the value of your home against the amount you owe.
For example, if your property is worth £200,000 and your mortgage is £150,000, your loan-to-value ratio would be 75%. That’s because your mortgage balance is 75% of your total property value.
A lower loan-to-value rate means your property has more value. This might help increase your chances of being approved for a loan with better rates.
How to work out Loan-to-Value
Calculating your LTV is fairly simple, but it does require some basic maths. The formula for calculating your loan-to-value ratio is as follows:
Loan Amount % Property Value X 100
As an example, if your remaining mortgage balance is £175,000 and your property value is £250,000, you’ll divide these two numbers, which gives you 0.70. From here, you’ll multiply 0.70 by 100, which gives you 70. This means that your total loan-to-value ratio is 70%.
How to calculate LTV for a second charge loan
If you want to apply for a second charge loan, your lender will usually calculate your Combined Loan-to-Value (CLTV). This equation combines your existing mortgage balance and your requested loan amount.
If we use the previous numbers above alongside a second charge loan request, your CLTV would look something like this:
- Property value: £250,000
- Existing mortgage: £175,000
- Second charge loan requested: £30,000
Total borrowing = £205,000
£205,000 % £250,000 = 0.82
0.82 x 100 = 82
This would mean your CLTV is 82%
Of course, calculating your loan-to-value ratio is not always straightforward. You can utilise LTV calculators or consult loan experts like Evolution Money.
Why is LTV used?
Loan-to-value ratio is an important calculation that lenders use when assessing loan applications.
This equation helps lenders understand how much equity you have in your property. It also helps them determine if there is any financial risk involved in loaning funds to you. The higher your LTV, the greater the risk for lenders.
If you have a lower LTV, you’ll be more likely to benefit from competitive interest rates, higher loan amounts and greater chances of approval.
How LTV impacts loan applications
Your loan-to-value ratio impacts different aspects of your application.
Interest rates
Lower LTVs usually equal lower interest rates. For example, if you’re borrowing at 60% LTV, you may be more likely to receive better interest rates compared to someone borrowing at an 80% LTV rate.
Loan amount
The amount you could borrow is also determined by your maximum permitted LTV. Every lender sets its own limits on borrowing based on the percentage of your property’s value.
Approval rate
LTV isn’t the main factor that contributes to approval rates, but it does play a significant role alongside income, affordability and credit checks.
What is a good Loan-to-Value ratio?
When it comes to determining a good LTV ratio, there are categories that lenders use to assess your application.
LTV Ratio |
Rating |
Lending Position |
| 60% or lower | Excellent | Access to lower interest rates and competitive terms |
| 60-75% | Very good | Access to competitive rates and many lender options |
| 75-80% | Good | The standard for loan applications |
| 81-90% | Fair | Viewed as higher risk and involves higher interest rates and less variety for terms |
| 91% to 95% | Poor | Less lenders are likely to lend and you will face the highest interest rates and restricted terms |
Can you improve your Loan-to-Value ratio?
If you want to get decent interest rates and loan terms, but you have a higher LTV, there are a few steps to take to try and improve your LTV.
Increase your property value
Investing in home improvements that help increase the value of your property may in turn help improve your LTV.
This could include:
- Loft conversions
- Bathroom and kitchen renovations
- House extensions
- Fitting solar panels
- Adding a conservatory
Once any works are completed, you should have your property revalued to assess how much your improvements have affected your LTV rates. If you need advice on home improvements that add value, we have a dedicated blog to help.
Increase your property deposit
If you’re purchasing a home, increasing your deposit amount reduces the amount you need to borrow and your mortgage amount. This could mean a lower LTV from the start.
Wait for equity growth before applying
Equity may naturally increase over time as your mortgage balance goes down and property values increase. This could lead to a lower LTV ratio.
Important factors to consider when calculating LTV
When calculating your LTV, there are a few factors to consider to ensure you get an accurate percentage.
Use an up-to-date property value
Property prices fluctuate greatly over time and using an outdated valuation may result in an inaccurate LTV.
Include any additional secured loans
Ensure that any secured loans you have related to your property are included as part of your calculations during the LTV process.
Consider additional fees and lender terms
Some lenders may have additional fees involved in the loan process or unique requirements which may affect your eligibility and affordability.
Discover your loan options with Evolution Money
Understanding your Loan-to-Value ratio is an essential part of the loan process. This calculation might help you make informed decisions about which loan is suitable for you. It may also put you in a position to better understand your finances and loan options.
Whatever your decision, here at Evolution Money we offer loans from £5,000 to £105,000 and work with you to find suitable terms based on your LTV ratio. When you check your eligibility, it won’t affect your credit score.
With repayment options ranging from 3 to 20 years and a mass of positive Feefo customer reviews, it’s clear why we’re a trusted lender.
For more help on how to apply for a loan or for advice on how to improve your LTV, contact our team today on 0161 814 9158 for advice.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 or over. Terms and conditions apply. Not all applicants will be accepted.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it.
Representative 17.46% APRC (Variable)
For a typical loan of £23,120 over 120 months with a variable interest rate of 17.46% per annum, your monthly repayments would be £442.07. This includes a Product Fee of £2,312.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £53,047.80. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
