How is loan to value calculated?

The way to work out your loan to value ratio is actually much simpler than you may think. 

LTV is a percentage that compares what you’re planning to borrow on a mortgage against what you can pay as a deposit. 

If you’re aiming to buy a house that costs £200,000, the LTV calculation could look like this:

• You save up £20,000 for a deposit on the £200,000 home
• This means you’ll take out a mortgage of £180,000 to cover the remainder
• Your proposed deposit would cover 10% of the total house price
• As a result, your LTV is 90%

The Shared Ownership difference

While the method of calculating LTV on a Shared Ownership property is the same as a regular house purchase, your LTV will only be based on the share that you intend to purchase (not the full cost of the property).  

So, in the above example, you may be intending to purchase a 50% share of the £200,000 home. This means that your deposit and mortgage would need to total £100,000. 

In this scenario, the calculation would look like this:

• You save up £20,000 as a deposit on the £100,000 share you want to purchase
• This means you’ll need an £80,000 mortgage on the remaining cost of your share
• Your proposed deposit would cover 20% of the total house price
• As a result, your LTV is 80%

What’s a good LTV ratio?

There isn’t a definitive rule as to what an ideal loan to value ratio looks like, because mortgage brokers use this calculation alongside other factors to determine whether they can loan to you. This can include your credit rating, your income and outgoings, and your age. 

Mortgage lenders will offer different products based on your intended LTV. If you’re unable to secure a mortgage with a particular lender due to a high LTV, it’s likely that you can work with a mortgage broker to find a suitable mortgage elsewhere. 

Higher loan to value ratios will often mean that your interest rates will increase, which could add further costs to your Shared Ownership mortgage. A 95% LTV Shared Ownership mortgage isn’t uncommon, but your monthly payments will likely be higher than a buyer with a 75% LTV. 

It’s a good idea to work with a mortgage advisor to determine what you can afford.

Can you obtain a 100% LTV mortgage on a Shared Ownership home?

It’s possible to obtain a 100% LTV mortgage, though these kinds of mortgages are uncommon and typically only available when going through a specialist mortgage broker. 

On a 100% LTV mortgage, you’ll be borrowing the full cost of your share, with zero deposit paid upfront. As a result, it’s likely that your monthly mortgage payments will be considerably higher than buyers who have a lower LTV. 

Not all housing associations will agree to a purchase without a deposit in place, so if possible, it’s worth trying to lower your LTV wherever possible.

How to improve your loan to value ratio

The best way to improve your loan to value ratio – and potentially improve your chances of securing a Shared Ownership mortgage – is by saving more towards your initial deposit. 

This will immediately improve your loan to value calculation, as an increased percentage for your deposit results in a reduced percentage for the remaining mortgage amount.  

If you’re struggling to save up for a higher deposit, take a look at our 5 expert tips to get you saving more effectively.