Loan to Value Explained: How Your Deposit Changes the Rate You Pay
Published 15th July 2026
Loan to value is the single number that most affects the interest rate you are offered, and it is the one first-time buyers understand last. It is simply the mortgage as a percentage of the property's value: borrow £180,000 against a £200,000 house and your LTV is 90%.
The reason it matters so much is that lenders price to bands rather than to a sliding scale. Cross a band and the rate steps down. Miss it by £100 and you pay the higher rate for the whole deal period.
Working It Out
Divide the loan by the property value and multiply by 100. A £240,000 purchase with a £36,000 deposit means a £204,000 loan, so 204,000 ÷ 240,000 × 100 = 85%.
Note it is the property's value, not the price you agreed. Those are usually the same thing, but if the lender's valuer comes back below your offer, the lender works from their figure. A £240,000 purchase valued at £232,000 with the same £36,000 deposit is a £204,000 loan against £232,000, which is 87.9%, and you have just fallen out of the 85% band without doing anything wrong.
The Bands Lenders Price To
Most lenders use some version of the same ladder:
| LTV band | Deposit needed | Where it sits |
|---|---|---|
| 95% | 5% | Highest rates, smallest choice of lenders |
| 90% | 10% | A meaningful step down from 95% |
| 85% | 15% | Another clear step |
| 80% | 20% | Smaller improvement |
| 75% | 25% | Where the best mainstream pricing generally starts |
| 60% | 40% | The lowest rates on offer |
The gaps between the bands are not evenly spaced. The jump from 95% to 90% is typically the largest, and from 75% to 60% the smallest. The Bank of England publishes average quoted rates at 75% LTV, which in August 2026 stood at 4.92% for a two-year fix and 4.78% for a five-year. That gives you an anchor for the middle of the ladder, but it is worth remembering that a 95% borrower is not being quoted anything close to it.
What a Band Is Actually Worth
A £240,000 purchase, two deposits
Illustrative rates of 5.15% at 90% LTV and 4.95% at 85% LTV, over a 25-year term.
- 10% deposit, £24,000. Loan £216,000 at 5.15%: £1,281.66 a month.
- 15% deposit, £36,000. Loan £204,000 at 4.95%: £1,186.63 a month.
£95.03 a month, which is £5,702 across a five-year fix, for the extra £12,000 of deposit. And the £12,000 is not spent, it is equity in your own house.
The rates above are illustrative rather than quoted, because pricing at each band moves constantly and varies by lender. The shape is the point: the step is real and it is worth several thousand pounds over a deal.
The Cliff Edge
Here is where it gets irritating. On that £240,000 purchase, 85% LTV needs a deposit of exactly £36,000. Turn up with £35,900 and your LTV is 85.04%, which puts you in the 90% band and costs you the £95 a month above.
A hundred pounds. For the sake of £100 you pay £5,700 more over five years.
So before you apply, work out the exact deposit each band requires on your purchase price, and see how close you are. If you are within a few hundred pounds of a threshold, that gap is the highest-return money in the entire transaction.
And remember the ratio has two halves. Negotiating £1,000 off the price improves your LTV as surely as finding £1,000 more deposit, and it reduces the loan as well. On a purchase sitting just the wrong side of a band, that is usually the easier conversation to have.
Building the Deposit
Two accounts are specifically designed for this, and one of them is closed to new savers.
The Lifetime ISA takes up to £4,000 a year, counting towards your overall £20,000 ISA allowance, and the government adds a 25% bonus, so a maximum of £1,000 a year. You can open one between 18 and 39, must make the first payment before you turn 40, and can keep contributing to 50. The property price cap is £450,000, you must buy with a mortgage through a solicitor or conveyancer, and the account has to have been open at least 12 months before you use it.
The catch is the withdrawal charge. Take the money out for anything other than a first home, reaching 60, or terminal illness and you lose 25% of the amount withdrawn. Because that 25% applies to your contribution as well as the bonus, you can get back less than you put in. And the £450,000 cap is a hard line: buy for a pound more and you cannot use the LISA for the purchase without paying the charge.
The Help to Buy ISA is closed to new savers. If you already hold one, you can pay in up to £200 a month until November 2029 and claim the bonus, worth up to £3,000, until November 2030. The price caps are £250,000 outside London and £450,000 in London, which is why some holders find a LISA transfer worth investigating.
If You Only Have 5%
The mortgage guarantee scheme relaunched in July 2025 and supports lending above 90% and up to 95% loan to value, with the government providing a guarantee to the lender rather than to you. The loan must be a repayment mortgage, not interest-only, and the scheme excludes buy-to-let, second homes, shared ownership and shared equity purchases.
It has no fixed closing date, but it is not permanent in the strict sense: the Treasury can close it on three months' notice and individual lenders can withdraw sooner. If a 95% mortgage is your plan, treat availability as a thing to confirm rather than assume.
You still have to pass the ordinary affordability assessment, including the stress test. The guarantee protects the lender's downside; it does not lend you money you cannot service.
Your LTV Improves on Its Own, Sometimes
Three things move it after you have bought, and it is worth checking before each remortgage:
- Capital repayments. Every monthly payment on a repayment mortgage chips at the balance, slowly at first and faster later.
- Overpayments. The fastest lever you control. Clearing enough to cross a band before your deal ends can pay for itself immediately in the new rate.
- House prices. Outside your control, and they move both ways.
If you think you are close to a better band, ask your lender or broker whether a fresh valuation would help. Some lenders will use an automated valuation for a product transfer; where the automated figure is conservative, paying for a physical valuation occasionally pays for itself several times over.
Negative Equity
If prices fall far enough your LTV can pass 100%, which means the mortgage is larger than the house is worth. It matters in practice only if you need to sell or remortgage, because you cannot clear the loan from the sale proceeds and no new lender will refinance it. If you are staying put and the payments are affordable, it is a number on a statement rather than an event.
The protection against it is the same as the protection against everything else here: a bigger deposit, and repayments that reduce the balance rather than just servicing it.
Work out the exact deposit each band needs on your target price, then use our mortgage calculator to see what the loan costs at each one. The difference between two bands is usually larger than people expect, and closing a small gap is the cheapest rate reduction available to you.