How LTV (Loan-to-Value) Affects the Interest Rate You Get

Interest Rates

28 Nov

If you’ve ever seen your mortgage rate change after adjusting your deposit, you’ve already seen LTV in action.

Loan-to-value is one of the biggest factors in how a mortgage is priced. It has nothing to do with guesswork and very little to do with negotiation. It’s about risk.

Understanding how LTV works puts you in a far stronger position when planning a purchase or remortgage.

What Is LTV?

Loan-to-value is the percentage of the property price (or value) that you’re borrowing.

A higher deposit means a lower LTV
A lower deposit means a higher LTV

Lenders use LTV to measure how exposed they are if something goes wrong.

Why LTV Affects Your Rate

A mortgage rate is a reflection of risk.

If a lender ever has to repossess a property, they won’t sell it at a perfect market price. Properties are usually sold quickly, often at auction, and for less than the original purchase price.

With a small deposit, there’s a higher chance the sale wouldn’t fully cover the outstanding mortgage. That’s more risk for the lender, so the rate is higher.

With a larger deposit, that risk reduces. The lender has more protection, so they can offer better pricing.

The same principle applies to credit history. More risk equals higher pricing.

Major LTV Pricing Tiers in the UK

Mortgage pricing typically works in bands. The most common tiers are:

Each step down can open up more options and better pricing.

Crucially, lenders price mortgages by tier, not by exact percentage. Being just over a threshold can cost you far more than you expect.

Common Misunderstandings About LTV

Many borrowers assume:

Lenders only care about income
A small deposit change won’t matter
Specialist mortgages are expensive for no reason

In reality:

Income decides how much you can borrow
LTV heavily influences how expensive that borrowing is
Specialist cases often need larger deposits because the overall risk is higher

Even a small deposit increase can move you into a cheaper LTV band.

Why Property Type and Credit Matter Too

LTV doesn’t exist in isolation.

Certain property types and credit profiles reduce lender appetite, which can tighten LTV limits or reduce product choice. This is why two people with the same deposit can receive very different outcomes.

The lower the risk overall, the more flexible and competitive the options tend to be.

The Real Cost of LTV Bands

Borrowers often underestimate how much difference there is between LTV tiers.

Being stuck just above a band can mean:

Fewer product options
Higher monthly payments
Paying more interest over time

This is why it’s worth checking whether saving a little more — or reassessing the property value — could unlock a better tier.

A Practical Way to Approach LTV

Instead of guessing, work through it methodically:

Calculate your LTV using a realistic property value
Identify which LTV tier you’re currently in
See which tier you’re close to reaching
Compare the difference between those bands
Decide whether increasing your deposit makes sense

Once the value and deposit are confirmed, decisions become much clearer.

How We Help

We calculate your true LTV.
We show how pricing changes across each tier.
We help you aim for the threshold that gives the best value, not just the fastest option.

No assumptions. No generic answers.

The Takeaway

Lower LTV usually means lower mortgage rates.
Even small deposit increases can unlock better pricing.

Understanding LTV helps you control the outcome — not just accept it.

Contact

Harley Kimber