Loan-to-value (LTV)

Definition

Loan-to-value, or LTV, is the ratio of a loan to the value of the asset used as security for it, expressed as a percentage. Borrow £300,000 against a property valued at £500,000 and the LTV is 60%. It applies to any secured borrowing — commercial mortgages, asset-backed loans, bridging — and tells the lender how much of the asset's worth is being lent against, and therefore how much cushion exists if the asset has to be sold to recover the debt.

In plain terms

LTV measures how much skin the borrower has in the deal versus how much the lender is risking. A low LTV means you are borrowing a modest slice of the asset's value and hold plenty of equity yourself; a high LTV means you are borrowing close to the full value, leaving the lender exposed if prices fall. The lower the LTV, the more comfortable the lender, because even a drop in the asset's value still leaves enough to clear the loan on a sale.

How it drives secured pricing

LTV is one of the biggest levers on the cost of secured borrowing. Because a lower LTV leaves a larger safety buffer, lenders treat it as lower risk and reward it with keener rates and more generous terms. Push the LTV higher and the lender's exposure grows, so pricing rises to match — and beyond a certain threshold the facility may simply not be available, because too little cushion remains. The same asset can therefore secure very different deals depending on how much you borrow against it: trimming the loan to bring the LTV down a band can pay for itself in a lower rate.

• Lower LTV → lower risk → keener pricing
• Higher LTV → thinner cushion → dearer, or declined
• Reducing the loan can drop you into a cheaper band

What a lower LTV buys you

Bringing your LTV down — by borrowing less, or by securing against an asset with headroom — widens your options. It opens access to better-priced facilities, improves the odds of approval, and leaves you with more equity should the asset's value wobble. It is worth remembering that LTV only matters where you are pledging an asset at all. Credicorp's model is built around lending to the company on the strength of its trading, without taking a personal guarantee, so for an unsecured facility there is no asset to value and no LTV to manage. Where you do borrow against an asset, the true cost of borrowing calculator helps you weigh a lower rate at a lower LTV against simply borrowing more.