LTV (Loan-to-Value Ratio) is the size of a loan expressed as a percentage of the appraised value or purchase price of the asset securing it, so a €240,000 mortgage on a €300,000 home has an LTV of 80%. Lenders usually use the lower of valuation and price, and the ratio rises without any borrowing when the asset loses value. A higher ratio means a thinner equity cushion and a larger loss if the lender must sell after default, so lenders price in bands and crypto lenders trigger margin calls and liquidations at set levels. Under the EU Capital Requirements Regulation, lower-LTV mortgages tie up less bank capital. In growth metrics, LTV can instead mean customer lifetime value.
How to calculate LTV
LTV = loan amount ÷ asset value × 100. Lenders usually take the lower of valuation and price, so a buyer paying €310,000 for a flat valued at €300,000 is assessed on €300,000. Combined LTV adds second-charge and other secured loans on the same asset. LTV also moves after the loan is made: if house prices fall 10%, the €240,000 loan above rises to about 89% of the new €270,000 value without the borrower doing anything.
Why lenders set LTV limits
LTV is the main driver of loss given default on secured loans. Illustrative example: at 60% LTV, a lender can absorb a 40% fall in the asset's value before its principal is at risk; at 95% LTV, a 5% fall plus selling costs already causes a loss. Lenders therefore price in bands, charging more above thresholds such as 75%, 85% or 90%, and set lower maximum LTVs for buy-to-let, commercial property and other collateral whose value swings more.
Crypto-backed lending automates the same logic. If a loan starts at 50% LTV and the collateral price falls until LTV reaches the platform's margin-call level, the borrower must add collateral or repay; if LTV keeps rising to the liquidation level, the platform sells collateral without further notice.
How LTV affects bank capital
Under the EU Capital Requirements Regulation, banks on the standardised approach apply a 20% risk weight to the part of a residential mortgage that does not exceed 55% of the property value; the remainder is risk-weighted as an unsecured exposure to the borrower. Illustrative example: on a €300,000 home with a €240,000 loan, €165,000 gets the 20% weight and the remaining €75,000 is treated as a retail exposure. Lower-LTV books tie up less capital per euro lent, which shows directly in return on equity.
LTV vs lifetime value
In SaaS and fintech metrics, LTV often means customer lifetime value, the gross profit a customer generates over the whole relationship. Set against customer acquisition cost, the LTV:CAC ratio shows whether growth pays back. A credit committee means loan-to-value; a growth board means lifetime value.
What it means for buying a lending business
When buying a mortgage lender, crypto lender or asset-backed fintech, buyers ask for the LTV distribution of the book at origination and at current valuations. A book whose average LTV has drifted from 70% to 85% because collateral values fell carries more loss risk than its arrears figures show, and that usually feeds into the price, a deferred payment or a warranty.