What is LTV and why does it affect your mortgage rate?
Updated August 2026
LTV is one of those acronyms estate agents and mortgage brokers throw around assuming everyone knows what it means. It stands for loan to value, and it's the single biggest factor determining what interest rate you'll be offered. Understanding it can save you tens of thousands of pounds over the life of your mortgage.
The basic calculation
LTV is your mortgage amount divided by the property's value, expressed as a percentage. If you're buying a £250,000 home with a £25,000 deposit, you need to borrow £225,000. That's 90% of the property's value, so your LTV is 90%.
Simple formula: LTV = (mortgage amount / property value) x 100.
A few more examples to make it concrete. Buying a £300,000 house with a £60,000 deposit? You're borrowing £240,000. LTV = 80%. Buying a £200,000 flat with a £10,000 deposit? Borrowing £190,000. LTV = 95%.
The lower your LTV, the bigger your deposit relative to the property price. And lenders reward lower LTV with cheaper rates because they're taking on less risk.
The LTV bands and what rates they get
Mortgage rates don't move smoothly as your LTV changes. They jump at specific thresholds. Lenders price their deals in bands, and dropping into a lower band can save you a significant amount. Here are the approximate rates available in August 2026 for a 2-year fixed repayment mortgage:
- 95% LTV (5% deposit): around 5.5%
- 90% LTV (10% deposit): around 4.8%
- 85% LTV (15% deposit): around 4.5%
- 80% LTV (20% deposit): around 4.3%
- 75% LTV (25% deposit): around 4.2%
- 60% LTV (40% deposit): around 3.9%
The jumps are biggest between 95% and 90%, and between 90% and 85%. Below 75%, rates still improve but the differences become smaller. Getting from 95% to 90% saves you 0.7%. Getting from 75% to 60% saves you only 0.3%.
The real cost difference: a worked example
Let's look at a £250,000 property and compare two buyers with different deposit sizes.
Buyer A has saved £12,500 (5% deposit). Their LTV is 95%. They borrow £237,500 at 5.5% over 25 years. Monthly payment: £1,460. Total interest over 25 years: £200,500. Total amount repaid: £438,000.
Buyer B has saved £62,500 (25% deposit). Their LTV is 75%. They borrow £187,500 at 4.2% over 25 years. Monthly payment: £1,012. Total interest over 25 years: £116,100. Total amount repaid: £303,600.
The difference in monthly payments is £448. Per year, that's £5,376. Over the full 25-year term (assuming rates stayed the same, which they won't, but it illustrates the point), Buyer A pays £134,400 more than Buyer B.
Now, Buyer B had to find £50,000 more upfront. But even accounting for that, the lower rate and smaller loan amount mean they pay vastly less overall. The total cost to Buyer A (deposit plus total repayments) is £450,500. For Buyer B, it's £366,100. That's £84,400 cheaper in total.
Why lenders charge more at higher LTV
It comes down to risk. If a lender gives you a 95% LTV mortgage on a £250,000 property and house prices drop by 10%, that property is now worth £225,000. But you still owe £237,500. You're in negative equity. If you can't pay and the lender repossesses, they'll sell for less than you owe them. They lose money.
At 75% LTV, prices would need to fall by more than 25% before the lender faces a loss. That's extremely unlikely outside a catastrophic crash. The property could drop from £250,000 to £190,000 and the lender would still recover their £187,500 loan from a forced sale.
Less risk to the lender equals a cheaper rate for you. It's that straightforward. The interest rate premium at high LTV is essentially an insurance charge for the increased risk of lending you a larger proportion of the property's value.
How LTV changes when you remortgage
Here's something many homeowners don't realise: your LTV improves over time without you doing anything special. Two things happen simultaneously. First, your mortgage balance decreases as you make repayments. Second, your property value usually increases over time (though not always).
Say you bought at 90% LTV two years ago. You borrowed £225,000 on a £250,000 property. After 2 years of repayments at 4.8%, your balance has dropped to approximately £216,000. And if your property has risen 5% in value (UK house prices rose an average of 3.2% per year over the last 20 years), it's now worth £262,500.
Your new LTV: £216,000 / £262,500 = 82.3%. You've dropped from the 90% band to the 85% band without saving any extra deposit. When you remortgage, you'll qualify for rates around 4.5% instead of 4.8%. On a £216,000 mortgage, that 0.3% saving is about £39 per month, or £936 over a 2-year fix.
Practical ways to improve your LTV
The obvious route is saving a larger deposit. An extra £5,000 or £10,000 might be enough to push you into the next LTV band. On a £200,000 property, the difference between a £10,000 deposit (95% LTV) and a £20,000 deposit (90% LTV) changes your rate from roughly 5.5% to 4.8%. That extra £10,000 saved upfront reduces your monthly payment by about £80.
Family help is another option. Gifted deposits from parents or grandparents are accepted by all mainstream lenders. The family member signs a letter confirming the money is a gift with no expectation of repayment, and provides a bank statement showing the source. About 40% of first-time buyers in the UK receive some form of family help with their deposit.
Buying a cheaper property is the approach nobody wants to hear but often makes the most financial sense. If your budget stretches to £250,000 at 95% LTV, consider looking at £220,000 properties instead. Your £12,500 deposit on a £220,000 home gives you 94.3% LTV (still in the 95% band), but if you can add just £9,500 more to reach £22,000, you'd be at exactly 90% LTV and qualify for much better rates.
Waiting and saving is legitimate too. If you can save an extra £200 per month for 12 months, that's £2,400 more deposit. Combined with potential house price movement and it might be enough to cross a threshold. But weigh this against rising prices potentially pushing properties further away. In areas where prices are climbing 5% per year, waiting 12 months to save an extra £2,400 while prices rise £12,500 doesn't add up.
LTV and your next steps
Check exactly where you sit. Work out your LTV using our mortgage calculator and see what rate band you fall into. If you're close to a threshold (say 91% or 92%), it might be worth the effort to get below 90%. Even a small shift can save you thousands over the deal period.
If you're already a homeowner coming up for remortgage, get your property valued. You might be pleasantly surprised. Two or three years of repayments combined with modest price growth can drop your LTV substantially, unlocking rates you couldn't access when you first bought.
And remember: LTV isn't the only factor in your rate. Your credit score, income stability, and the type of property all play a part. But LTV is the one you have the most direct control over through the size of your deposit. Every extra pound you put down brings your rate a fraction lower.
This is a general guide, not financial advice. For personalised mortgage recommendations, speak to an FCA-regulated mortgage adviser.