Factors that affect your loan-to-value mortgage ratio

There are two key factors that will impact on your loan-to-value ratio: ​

• Your deposit: This is the amount of cash that you are able to put towards buying a house. Lenders will look for a minimum of 5% from first-time buyers
• Equity: If you already own a home, this is the difference between the value of your property and the value of your mortgage.

How your loan-to-value ratio affects your mortgage

Your loan-to-value ratio affects the interest rates that lenders will offer you and how much they might offer you.The bigger the ratio, i.e. the higher the value of the mortgage you need in relation to the value of the property, the more high-risk you are considered to be; this means lenders are likely to impose a higher interest rate and will typically be willing to offer a smaller multiple of your income.

The lower the ratio, i.e. the smaller the value of the loan compared to the property’s worth, the more you will inspire confidence in lenders; this means they are likely to offer you a more attractive interest rate and potentially a higher multiple of your income.

Key loan-to-value milestones

95% You will need at least a 5% deposit to enter the property market. 5% is normally the amount that first-time buyers put down.A 95% loan-to-value ratio means you will have the highest interest rates, currently (April 2019) between 3% and 5%, with most lenders offering 4% and over.A 95% loan-to-value ratio means lenders will also offer a lower income multiplier, typically up to around 4.5 times your income.

90% If you can put down the extra deposit, you are likely to be offered mortgages with more favourable rates. Most lenders will also offer you a more generous income multiplier, potentially up to 5 times your income – although this can be higher depending on your salary.

85% If you are looking to buy a new-build house, you may be required to put down a 15% deposit with some mortgage lenders.

75% Having a 25% deposit or equity of 25% can help you borrow more as a multiplier of your income, although this varies between lenders. 75% is also the loan-to-value ratio where most lenders start coming in with their most favourable interest rates, but some of them save their lowest rates for customers with 40% or 50% equity, i.e. a loan-to-value ratio of 60% or 50%.