LTV stands for ‘loan-to-value’, and means the proportion of the property that’s covered by a mortgage. So, if you have a 90% mortgage, the mortgage will cover 90% of the property. 

The remaining portion, 10% in this case, is ‘owned’ by you, rather than the bank. This is called your equity (although you technically own all of the property). When you’re buying a property, this is often called your deposit, e.g. you’ll need 10% deposit, to get a 90% LTV mortgage.

It’s super important to look at loan-to-value (LTV) when looking at mortgages – as it can mean the difference between £100s per month on your mortgage payments.

The lower the LTV, typically, the lower the monthly repayments (what you pay every month) – as the interest rate (and overall cost of the mortgage) is typically lower too.

That’s because mortgage lenders (such as banks), want to keep their money safe and not risk their money. And if they’re lending you less money for your property (in terms of the property value), it’s lower risk for them.

So, a Lower LTV mortgage means that less of the property is ‘owned’ by the mortgage lender. This is important as if you stop paying your mortgage (called defaulting on your mortgage), as a last resort, your lender can sell your property to recover the amount you owe (again, they will only do this as a last resort) – and if the LTV is low (they’re owed less in relation to the property value), then they’ll likely get all of their money back if when they sell it.

If the LTV was quite high, for instance 90%, or even 100%, there’s a high chance the mortgage lender might not get all of their money back if they sold your property – they often sell it at auction quickly for less than it’s worth and of course, there's fees involved.

So, the lower the LTV, the better mortgage rates you’ll typically get.

There’s one thing to watch out for, loan-to-value is measured in 5% increments, and always rounded up. So, if you do the maths and work out you have an LTV of 76%, you’ll only be able to get a mortgage with 80% LTV.

However, if you’re able to save a bit more cash, and get your LTV down to 75%, you’ll be able to get 75% LTV mortgages, and potentially save lots of money with a cheaper mortgage.

A 90% LTV mortgage is very common with first time buyers. People who are remortgaging (switching deals), can have a wide range of LTVs, from 95% all the way down to 1%.

So, if you can only get a high LTV mortgage, don’t fret – getting on to the property ladder is a great achievement. But, there’s nothing wrong with renting and saving a bit more until you’re ready.

If you do opt for a high LTV mortgage, don’t worry, you won’t be on it forever. You can change your mortgage deal in the future with a different LTV. 

Note: your LTV will naturally go down as you pay off the mortgage (you’ll have more equity), and if your property value goes up in value, your LTV will fall too.

However, if your property goes down in value, and you have a high LTV, the value of the property could drop below the mortgage amount, which is called negative equity. This means that if you sell your property, you won't have enough money to repay the mortgage – which means making up any difference between the sale price and mortgage amount.

The best way to compare mortgages is to use a mortgage broker (also called a mortgage advisor) – they’ll be able to search the whole market to find the best deal for you (that means they will search every UK mortgage). 

When choosing a mortgage broker, there's just one rule – make sure you use a mortgage broker who has access to the ‘whole market’ (can search every mortgage in the UK). 

There’s over 20,000 mortgages from over 100 lenders, but lots of mortgage brokers can only search a handful of mortgage lenders. You want one that can search every mortgage lender, otherwise you can’t be sure you’re getting the best deal for you – and that could mean paying £100s more per month than you need to.

If you’re not sure where to find a good broker, here’s the best mortgage brokers.

A mortgage broker can also advise you on the best type of mortgage for you, whether that’s a fixed rate deal for 2 years, 5 years or longer…

A fixed rate deal is where the interest rate stays the same for a set period of time (called the initial period), and typically, you’ll get a lower interest rate during that period.

However, the fees to change your mortgage during that initial period are high (called early repayment charges,  ERCs). So make sure you're happy to commit to the time frame.

After this period, your interest rate will typically go up. This is because you’ll be automatically moved to the lender’s standard variable rate (SVR), which is their ‘default’ interest rate. However, you are normally free to switch mortgage deals to another, lower cost mortgage when you are on a lender’s SVR.

There’s lots to mortgages, and getting professional advice is always a great idea. Not only that, but a mortgage broker will know which lender is right for your circumstances, for instance if you need a mortgage quickly, are self-employed, or have unusual circumstances.

They could also help you borrow more money, and increase your affordability (so you can get the mortgage in the first place or buy your dream home). Check out Tembo¹, who specialise in this area, and have 5 star service.

If you’ve got enough equity in your property (how much you own vs how much the bank owns), you could remortgage to a lower LTV, and get a better deal (a remortgage is switching to another mortgage deal).

This might happen if your property has gone up in value, and so your equity has increased (as your mortgage hasn't increased). Or, you could even add more cash yourself, to increase your equity.

Releasing cash (equity)

If you have a low LTV already, you could do the opposite, and remortgage to a higher LTV – you could then ‘release equity’ from your mortgage, which means the mortgage lender will give you cash. Sounds good right?

Typically people do this for all sorts of reasons, but a common one is for home renovations or consolidating other debt (like paying off loans and overdrafts).

Just bear in mind that you’ll have a bigger mortgage amount, so normally have a higher interest rate, more fees, higher monthly repayments, and ultimately paying more in interest over the lifetime of the mortgage.

Here’s where to learn more about remortgaging to release equity.

What about buy-to-let mortgages?

Buy-to-let mortgages are a bit different to residential mortgages (mortgages for the home you live in). They’re typically only offered with an LTV of 75% of lower – meaning you’ll need at least a 25% deposit to get one (but not always, some lenders offer higher – it’s best to speak to a mortgage broker like Tembo¹ to find the best deal for you).

That’s because banks are a bit stricter when it comes to buy-to-lets, as the mortgage repayments are typically dependent on the tenant paying rent, rather than the mortgage holder paying it from their income (e.g. salary), which makes things a bit riskier (and remember they don't like risk!).

If you use the right mortgage broker, you’ll be guaranteed the best mortgage for you, and with the right mortgage Lender. They’ll also handle everything for you, including making the mortgage application. How great is that?

If you choose a mortgage broker such as Tembo¹, they can even help you borrow more than you normally could.

Remember, when looking for a mortgage yourself, don’t simply look at the interest rates. There can be lots of different costs involved with a mortgage than just the interest rate (such as arrangement fees), and mortgage lenders can have high additional costs to reduce the interest rate – so they can appear low cost when they really aren’t. Sneaky!

And that's all there is to finding a good mortgage deal. Simply let the experts find the best one for you.

If you’re not sure where to find a great broker, check out Tembo¹ and Habito¹ – they’re both online, have great service, and search the whole market, so you can be sure you’re getting the best deal out there.