How Combined LTV is Calculated
Combined LTV on a second charge secured loan is calculated by dividing the sum of all secured borrowing against the property by the property's current market value, expressed as a percentage. The formula is: (First Mortgage Balance + Secured Loan Amount) ÷ Property Value × 100 = CLTV%.
For example: a property worth £400,000, with an outstanding mortgage balance of £200,000, and a proposed secured loan of £80,000. Total secured debt is £280,000. Divided by £400,000 gives 0.70, or 70% CLTV. If the same property had a mortgage of £260,000 and a loan of £80,000, total debt would be £340,000 — a CLTV of 85%. The lender's maximum CLTV policy determines whether each scenario is acceptable and at what rate.
Lenders use the lower of the purchase price and the independent valuation for the property value figure. This matters because if you paid £400,000 for a property three years ago and believe it is now worth £450,000, the lender will commission their own valuation — if the surveyor comes in at £430,000, your CLTV will be calculated on £430,000, not your assumed £450,000. Always use a conservative property value estimate when calculating CLTV before approaching lenders.
For properties with shared equity loans or Help to Buy arrangements, the equity loan share is treated as additional secured debt in most CLTV calculations. This can substantially reduce the headline LTV available for a second charge. Always confirm how your lender treats equity loan arrangements before applying.
LTV Bands and How They Affect Your Rate
Secured loan rates are tiered by LTV, with lower LTV attracting lower rates. The tiers vary by lender, but a typical rate band structure for a second charge lender might look like this: up to 60% CLTV is the lowest risk tier with the best rates; 60 to 70% CLTV represents standard pricing; 70 to 75% CLTV carries a modest premium; 75 to 80% CLTV carries a more significant rate increase; and 80 to 85% CLTV carries the highest mainstream rates. Above 85%, only specialist or niche products apply.
As an illustration, a borrower with clean credit and good income might be offered 8% at 65% CLTV, 8.75% at 75% CLTV, 10% at 80% CLTV, and 11.5% at 85% CLTV from the same lender. On a £100,000 loan over 15 years, the difference between 8% and 11.5% in total interest is approximately £34,000. Reducing your CLTV — by using a smaller loan amount, making a partial mortgage repayment before applying, or waiting until property prices have increased — can generate very significant savings.
Credit history interacts with LTV in a multiplicative way. Adverse credit at a high LTV generates the highest risk premium; clean credit at a low LTV generates the lowest. For borrowers with impaired credit, lenders typically apply a lower maximum CLTV than for clean-credit borrowers. A specialist lender might offer up to 85% CLTV for clean credit but cap at 70% CLTV if there are recent defaults or CCJs, even if the headline rate is quoted as the same.
Lenders also apply minimum equity requirements expressed in absolute terms as well as percentage terms. A lender might require at least £50,000 of residual equity after the second charge is placed, regardless of the CLTV percentage. This is more relevant for smaller loan amounts against lower-value properties than for large loans against high-value properties, but it is worth confirming with your broker when assessing lender options.
