What is loan to value ratio?

Loan to value ratio can affect the interest rate you are offered. 

In short, the more money you can put down as a deposit, the better chance of being offered a lower interest rate.

Paying less interest means you’ll have cheaper monthly repayments and pay back less money overall. 

The lower your LTV ratio, the cheaper your mortgage is likely to be. If your loan to value is too high, some lenders might not let you borrow at all. 

If you have a lower loan to value, say, 60% and under – lenders may view you as a safer option than someone with a 90% LTV ratio. This is because a low LTV ratio means you will borrow a smaller percentage of the value of the property.

If you have a small deposit, you may have to pay a higher interest rate to offset the risk you pose to the lender. 

Working out your loan to value ratio is simple. Let’s say you want to buy a home worth £200,000 and you have a deposit of £20,000:
 

• Subtract your deposit from the value of the home.
• £200,000 minus £20,000 equals £180,000. 
• So you need to borrow £180,000.
• £180,000 is 90% of £200,000. So your loan to value is 90%.

If you want to improve your loan to value ratio, there’s a few actions you can take:
 

• Save up for longer –  A bigger deposit is a way of improving your loan to value ratio.
• Buy a cheaper property – As your loan to value is based on the value of the home you want to buy, going for a cheaper property will bring it down.

If you don’t fancy doing some sums in your head, there are plenty of handy calculators that could help you work out your loan to value. Check out the YBS deposit calculator. 

Enter:
 

• How much the home you want to buy will cost.
• What percentage of the price you want to save (so the loan to value you want).
• It will tell you how much deposit you’ll need and what you’ll need to do to save for it.