Loan-to-value and why the thresholds matter
Loan-to-value is the loan as a percentage of the property's value. Lenders price in tiers, so crossing a threshold changes the rate available to you — nothing in between does.
What this calculator does
- Works out loan-to-value from a property valuation and an outstanding loan.
- Shows the equity that implies.
- Helps you see how far you are from the next pricing threshold.
How the calculation works
Loan-to-value is simply the loan divided by the property's value, expressed as a percentage, and the equity is the remainder. Its importance is entirely about how lenders price. Rates are not set on a sliding scale: they are set in tiers, typically at 95%, 90%, 85%, 80%, 75% and 60%. Within a tier the rate is the same, so reducing loan-to-value from 84% to 81% changes nothing at all, while reducing it from 81% to 79% can move you into a cheaper tier and cut the rate meaningfully. This is why the distance to the next threshold is the number worth knowing before a remortgage: a modest overpayment, or simply a rise in the property's value, can be worth far more than its size suggests. Both sides of the ratio move over time — the balance falls as you repay, and the valuation changes with the market — so loan-to-value at remortgage is often materially better than at purchase.
The rule
Loan-to-value = outstanding loan ÷ property value. Equity = property value − outstanding loan.
Step by step
- Take the current market value of the property.
- Take the outstanding mortgage balance.
- Divide the balance by the value to give loan-to-value.
- Subtract the balance from the value to give equity.
Worked example
A property now valued at £300,000 with £225,000 still outstanding on the mortgage.
What was entered
| Property market value | £300,000 |
|---|---|
| Outstanding mortgage loan | £225,000 |
The arithmetic
- Loan-to-value is £225,000 ÷ £300,000 = 75%.
- Equity is £300,000 − £225,000 = £75,000.
- 75% sits exactly on a common pricing threshold, so this borrower qualifies for the 75% tier rather than the more expensive 80% tier.
- Reaching the next tier at 60% would need the balance down to £180,000, or the valuation up to £375,000.
What the calculator returns
| Loan-to-value | 0.75 |
|---|---|
| Equity | £75,000.00 |
Key assumptions
- The property value entered is a realistic current market value.
- The loan figure is the full outstanding balance, including any fees added to it.
Limitations
- The lender's valuation is the one that counts, and a surveyor may value the property below your estimate — which is the single most common reason a remortgage lands in a worse tier than expected.
- Where more than one loan is secured on the property, all of them count towards loan-to-value.
- Threshold levels are lender conventions, not rules, and differ between lenders and between products.
- New-build properties, flats and non-standard construction are sometimes capped at a lower maximum loan-to-value regardless of the arithmetic.
Common questions
Why does dropping a few percent make no difference?
Whose valuation counts?
Does my loan-to-value improve on its own?
Related calculators
- Mortgage Amortisation Calculator — Find the outstanding balance to use as the numerator.
- Mortgage Overpayment Calculator — See what overpaying would do to your loan-to-value tier.
- UK Mortgage Calculator — See how the rate a tier unlocks changes the monthly payment.
Official sources
Every figure in this guide was checked against the sources below. Where a source could not confirm a figure, it is marked as requiring verification rather than presented as settled.
- What is loan to value? — MoneyHelperDefinition of loan-to-value and its effect on mortgage pricing
- MCOB 11.6: Responsible lending, and responsible financing of home purchase plans — Financial Conduct AuthorityMCOB 11.6.18R: lenders must consider likely interest rates over at least five years and must assume a rise of at least 1% over that period, unless the rate is fixed for five years or more