Loan to value ratio explained: formula and examples

Loan to value ratio (LTV) is the size of your mortgage compared with the value of the property, expressed as a percentage: LTV = loan ÷ property value × 100. A €240,000 loan on a €300,000 property has an LTV of 80%, which means you fund the other 20% yourself. Lenders use LTV to judge risk, so it shapes how much you can borrow, which products you can choose and often what interest rate you are offered.

This article gives you the loan to value ratio explained step by step, with worked examples in euros. The maths works the same in any currency.

Loan to value ratio explained: the formula

LTV (%) = loan amount ÷ property value × 100

And the two related rearrangements you will use most:

• Maximum loan = property value × maximum LTV
• Deposit needed = property value − maximum loan

The equity you hold in the property is the flip side of LTV: equity % = 100% − LTV.

Worked example: buying

You want to buy a flat for €300,000.

• With a €240,000 loan: 240,000 ÷ 300,000 = 0.80, so the LTV is 80% and your deposit is €60,000.
• If a lender's maximum for this product is 75%, the largest loan is 300,000 × 0.75 = €225,000, and you need a €75,000 deposit.

Here is how the deposit changes with LTV on the same €300,000 property:

LTV	Loan	Deposit (equity)
60%	€180,000	€120,000
75%	€225,000	€75,000
80%	€240,000	€60,000
90%	€270,000	€30,000

Which "value" do lenders use?

This is where many buyers get caught out. For a purchase, lenders typically use the lower of the purchase price and their own valuation. For a refinance, they use a current valuation.

Example: a low valuation

You agree to pay €300,000 and plan to borrow €240,000 (80%). The lender's valuer says the property is worth €290,000.

• LTV on the valuation: 240,000 ÷ 290,000 = 82.8%
• If the product's limit is 80%, the maximum loan is 290,000 × 0.80 = €232,000
• You need €8,000 more in cash, or a renegotiated price, or a different product

Build a buffer into your plans for this. The buy to let due diligence checklist covers valuation and other checks worth doing before you commit.

Purchase costs are on top

Transfer taxes, notary or legal fees, broker fees and valuation fees are usually not part of the LTV calculation and normally cannot be borrowed within the main mortgage. If purchase costs on the example flat were, say, €20,000, an 80% LTV purchase would need €60,000 deposit plus €20,000 costs: €80,000 of your own money. Purchase costs vary a lot by country, so check the figures that apply to you.

Why LTV matters to lenders and to you

From the lender's side, LTV measures the safety cushion. If you stop paying and the property has to be sold, a lower LTV means the sale price is more likely to cover the debt even after a price fall and sale costs.

From your side, LTV affects:

• Access: many products have maximum LTVs, and some property types (for example buy-to-let, holiday lets or unusual construction) often have lower limits.
• Pricing: lenders commonly set rates in LTV bands. A lower band often means a lower rate, but the bands and the size of the difference are lender-specific.
• Resilience: a lower LTV gives you more room to absorb a fall in property values without slipping into negative equity.
• Returns: a higher LTV means less of your own cash per property, which can raise percentage returns when things go well and magnify losses when they do not. The trade-off is explored in cap rate vs cash on cash return.

How LTV changes over time

LTV is not fixed at purchase. It moves with two things: your loan balance and the property's value.

Repaying principal lowers LTV

With a repayment mortgage, the balance falls every month. Take the €240,000 loan over 25 years at a hypothetical 4% per year (an illustration, not a market rate). The monthly payment is €1,266.81, and the balance is about:

• €209,051 after 5 years
• €171,263 after 10 years

If the property stays at €300,000, the LTV drops from 80% to about 69.7% after 5 years and 57.1% after 10 years without you doing anything extra. Early in the loan this happens slowly, because most of each payment is interest; how mortgage amortization works explains why. An interest-only loan does not reduce LTV at all unless the value rises.

Value changes move LTV too

Same loan, balance €209,051 after 5 years, under three value scenarios:

Property value after 5 years	LTV	Equity
€270,000 (10% lower)	77.4%	€60,949
€300,000 (unchanged)	69.7%	€90,949
€330,000 (10% higher)	63.3%	€120,949

Negative equity

If you bought at 90% LTV (€270,000 loan on €300,000) and the value fell 15% to €255,000 before you had repaid much, your LTV would be 270,000 ÷ 255,000 = 105.9%. You would owe more than the property is worth. That does not force a sale, but it makes refinancing or selling without adding cash very hard. The higher your starting LTV, the smaller the fall needed to get there.

LTV when refinancing

When your fixed period ends or you want to release equity, the lender recalculates LTV on the current balance and a new valuation. Whether a refinance pays off at all is a separate calculation.

Example: equity release

After 5 years the balance is €209,051 and the property is valued at €330,000. A lender's maximum for the product is 75%.

• Maximum new loan: 330,000 × 0.75 = €247,500
• Current balance: €209,051
• Possible additional borrowing: €247,500 − €209,051 = €38,449, before fees

Borrowing that extra money pushes your LTV back up to 75%, raises your payments and reduces your safety cushion. Releasing equity is a tool, not free money. Check the effect on monthly cash flow with the rental yield calculator and the new payment with the mortgage calculator.

LTV and its relatives

Lenders rarely look at LTV alone. You may come across:

• Combined LTV (CLTV): all loans secured on the property together, including any second-charge loan, divided by its value.
• Loan to cost (LTC): loan divided by total project cost, common for renovations and developments.
• Loan to income (LTI): loan divided by your income, used mainly for owner-occupied mortgages.
• Rental cover or debt service tests: for buy-to-let, many lenders check that expected rent exceeds the mortgage payment by a set margin at a stressed rate.

Each lender combines these tests differently, and regulation of mortgage lending varies by country. A qualified mortgage adviser can tell you which limits apply to your situation.

How to lower your LTV

1. Save a larger deposit. The most direct route, though it takes time.
2. Buy for less. Negotiating the price down lowers the loan needed for the same deposit.
3. Borrow less than the maximum. Leave a margin below the lender's limit and below band thresholds.
4. Choose repayment over interest only, so the balance falls every month.
5. Overpay, if your contract allows it without fees.
6. Add value carefully. Renovations can lift the valuation, but only if the market recognises the improvement.

Common mistakes

• Using the price instead of the valuation. A low valuation can change your LTV band or the loan you are offered.
• Forgetting purchase costs. They sit on top of the deposit and can be substantial.
• Borrowing right up to the limit. You lose your buffer against value falls and rate rises.
• Assuming values only go up. Run a scenario where the value falls 10 to 20% and check your LTV.
• Confusing LTV with affordability. A low LTV does not mean you can afford the monthly payment; lenders and you should check both.

Key takeaways

• LTV = loan ÷ property value × 100. An 80% LTV means you hold 20% equity.
• Lenders usually use the lower of price and valuation; purchase costs are extra.
• LTV falls as you repay principal and as values rise, and rises if values fall.
• Above 100% LTV you are in negative equity.
• A lower LTV generally means more choice, potentially better pricing and more resilience. For how leverage fits into a full strategy, see the buy to let investing guide.