What Is LTV and How Is It Calculated for a Secured Loan?

At a glance

• LTV compares secured borrowing with the property value.
• For a second charge, lenders usually focus on combined LTV including the first mortgage and proposed new loan.
• A lower LTV means more equity remains in the property.
• LTV is important, but affordability and credit criteria still determine eligibility.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Loan-to-value, usually shortened to LTV, is a percentage showing how much is borrowed against a property
compared with the property’s value. For a second charge mortgage, secured loan or homeowner loan, the most
useful measure is often combined LTV (CLTV), because the first mortgage and the proposed second charge are
both secured on the same property.

Terminology: secured loan, homeowner loan and second charge mortgage

In the UK homeowner market, the expressions secured loan, homeowner loan and second charge mortgage are commonly used for borrowing secured against a property where an existing first mortgage remains in place. The precise legal and regulatory treatment depends on the agreement and circumstances, so product documentation should always be checked.

Step	Calculation
Property Value	£320,000
First Mortgage	£192,000
Proposed Second Mortgage	£32,000
Total Secured Borrowing	£224,000 / £320,000 x 100 = 70%
Combined LTV	£96,000 / 30%

The LTV formula

LTV = secured borrowing divided by property value, multiplied by 100. If a home is worth £250,000 and the
first mortgage is £150,000, the first mortgage LTV is 60%.

Combined LTV for a second charge

For a second charge, add the existing first mortgage balance to the proposed second charge before dividing by
the property value. If the first mortgage is £150,000 and a £25,000 second charge is proposed on a
£250,000 home, total secured borrowing is £175,000 and combined LTV is 70%.

Why LTV affects lender decisions

Higher LTV leaves less equity as a buffer if property values fall or the property has to be sold. Lenders may
therefore charge differently, set lower loan limits or restrict credit profiles at higher LTV bands. Maximum LTV
rules vary by lender and product.

Valuation and changing LTV

LTV is based on the lender’s accepted property valuation, not necessarily the owner’s estimate. It also changes
over time as mortgage balances reduce or property values rise or fall. A new valuation can therefore move an
application into a different LTV band.

Potential benefits and points to weigh

Potential reasons a homeowner might consider this route include access to property-backed borrowing, the possibility of keeping an existing first mortgage in place, and – depending on the product – a longer repayment term or larger loan than some unsecured alternatives. These are not benefits for every borrower and must be judged against the actual offer available.

Property risk: the borrowing is secured on the home, so failure to maintain repayments can ultimately lead to
Total cost: a lower monthly payment can result from a longer term and may mean paying more interest
Fees: lender, valuation, legal and intermediary fees may If fees are added to the loan, interest may be charged on them.
Future flexibility: another charge can affect later remortgaging, moving home or raising further
Eligibility: no amount, rate or approval is guaranteed; decisions are subject to lender criteria, affordability checks and status.

Comparing cost: APRC, fees and total repayable

APRC (Annual Percentage Rate of Charge) is designed to show the overall annual cost of mortgage borrowing over the full term, using the assumptions required by the mortgage rules. It takes account of the interest rate and relevant charges included in the calculation. Some costs may be excluded if they are not known to the lender, so the APRC should be considered alongside the monthly payment, total amount repayable, fees and the loan term.

A useful comparison therefore looks beyond the initial interest rate. Review the mortgage illustration or ESIS, the monthly instalment, all fees, whether fees are paid upfront or added to the balance, the term and the total amount repayable. If a variable rate applies, consider how payments could change.

Credit searches and eligibility checks

An initial eligibility check may use a soft credit search, which is not visible to other lenders and does not affect your credit score. A formal credit application will usually involve a hard search, which is recorded on your credit file and can be seen by other lenders. Processes vary, so check what type of search will be used before proceeding.

Worked example

Worked calculation: Property value = £320,000. First mortgage = £192,000. Proposed second charge =
£32,000. Total secured borrowing = £224,000. £224,000 / £320,000 = 0.70. Multiply by 100 = 70%
combined LTV. The remaining equity is approximately 30%, or £96,000, before transaction or selling costs

What an adviser should consider

An FCA-authorised mortgage broker or adviser, like Dragon Finance can compare the available routes in the context of the homeowner’s income, expenditure, property, existing mortgage, credit profile and objectives. Appropriate advice should consider relevant alternatives rather than focus solely on whether a particular second charge is available. Speaking to an adviser does not oblige a homeowner to proceed, although consumers should check at the outset whether any advice or broker fee could become payable and at what stage.

Frequently asked questions

Is 70% LTV good for a secured loan?

There is no universal definition of good. It represents 30% equity, but product availability and pricing depend on
lender criteria and the wider application.

Does lower LTV guarantee a lower rate?

Not necessarily, although LTV is often a pricing factor. Credit history, loan size and lender policy also matter.

Can I use an estate agent valuation?

A lender will normally rely on its own accepted valuation method, which may differ from an estate agent
estimate.

What is the difference between LTV and equity?

LTV expresses secured borrowing as a percentage of value. Equity is the value remaining after secured
borrowing is deducted.