You’ll see the phrase ‘loan to value’ or the letters ‘LTV’ bandied around a lot in the mortgage world.
It’s a way of working out how much you’re borrowing compared to the total cost of the house. You should be aiming for a low LTV, around 80%.
It’s worked out using percentages. It might sound complex, but it’s very similar to working out a deposit.
All you need is your house price, deposit amount, and the amount your mortgage is for. You can work your mortgage out by just subtracting your deposit from the house price. Then, divide your mortgage by your house price, and multiply by 100.
For example, taking our average house price of £250,000 and our recommended deposit for this house price of £50,000, you’ll have:
Mortgage is £250,000 - £50,000 = £200,000
Mortgage divided by house price is £200,000 / £250,000 = 0.8
Then just multiply by 100 to get the final percentage 0.8 x 100 = 80% LTV.
Remember, lower LTVs mean better interest rates, but also higher deposits.
You’ll need to know about LTVs when you remortgage your house as well, so it’s not just something for first-time buyers.