Loan to Value Ratio Explained
Quick Answer
What is loan-to-value ratio in Australia?
LVR = loan amount ÷ property value × 100
Loan-to-value ratio measures your loan amount as a percentage of the property value. A higher LVR means you are borrowing more against the property, which can affect lender appetite, deposit requirements, pricing, lenders mortgage insurance and refinance options.
- Formula Loan ÷ value × 100
- Common threshold 80% LVR
- Above 80% LVR Often LMI applies
- Lower LVR Lower lender risk
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Two numbers that control your LVR
Property value
Lenders do not rely only on what you think the property is worth. For purchases, they usually compare the contract price with the bank valuation. For refinancing, they use an accepted current valuation.
Value Risk
Loan amount
The larger the loan compared with the lender-accepted value, the higher the LVR. Higher LVR files can face tighter lender policy, extra scrutiny and possible LMI on standard residential loans.
Lending RiskCommon LVR levels and what they usually mean
These examples are general only. Final assessment depends on lender policy, property type, valuation, income, credit conduct and loan purpose.
-
60% LVR Strong equity buffer
-
70% LVR Moderate leverage
-
80% LVR Common LMI line
-
90% LVR Higher risk lending
LVR does not tell you whether you can afford the loan. It only measures security risk. Lenders still assess income, expenses, credit conduct, loan purpose and the property being used as security.
Need help understanding your LVR before applying?
What lenders look for when assessing your LVR
LVR is simple to calculate, but lenders look beyond the percentage. They want to know whether the value, loan amount and borrower position make sense together.
Accepted property valuation and security type- Loan amount compared with the lower accepted value
- Deposit size, usable equity and source of funds
- Loan purpose, borrower income and repayment capacity
- Credit conduct, existing debts and lender policy fit
If the bank valuation is lower than expected, your LVR can rise. See how property valuations affect lending.
Common LVR scenarios
These are common situations where LVR becomes important before applying, refinancing or releasing equity.
80% LVR loan- 90% LVR loan
- Investment purchase
- Refinance valuation
- Equity release
If you are using equity from an existing property, read more about equity release.
Key factors that affect your LVR
LVR is influenced by the property value, loan size, deposit position and lender policy. Small valuation or deposit changes can move the result quickly.
01
Property value
Lenders usually rely on the lower of the contract price and bank valuation for purchases, not just the advertised price.
02
Loan amount
The higher the loan amount compared with the accepted property value, the higher the LVR and lender risk.
03
Deposit size
A larger deposit usually lowers the LVR. Purchase costs such as stamp duty and conveyancing are separate from the deposit.
04
Property type
Residential, investment, commercial, SMSF and low doc loans can all have different maximum LVR settings.
05
Borrower profile
Income, expenses, credit conduct and existing debts still matter, even if the LVR appears strong.
06
Lender policy
Different lenders treat high LVR, investment, self-employed and specialist files differently, so policy fit matters.
Common LVR problems that affect lending
LVR issues often appear late in the process, especially when the valuation, deposit or loan amount does not line up with the borrower’s assumptions.
Valuation comes in lower
If the lender valuation is below the purchase price, your LVR rises and you may need a larger deposit or lower loan amount.
Leave buffer before exchanging.
Deposit is miscalculated
Stamp duty, legal costs, inspections and other purchase costs are usually separate from your deposit and can reduce available funds.
Separate costs from deposit.
LVR triggers LMI
On many standard residential loans, an LVR above 80% may require lenders mortgage insurance, which protects the lender rather than the borrower.
Check LMI before applying.
Equity is overestimated
For refinancing or equity release, the usable equity depends on the current valuation and the lender’s maximum LVR, not the market estimate alone.
Use a realistic value.
How to work out your LVR in 6 steps
Step
01
Confirm property value
Use the contract price for a purchase, then allow for the lender’s valuation to confirm the accepted value.
Step
02
Confirm loan amount
Include the base loan amount you want, plus any costs you plan to capitalise where lender policy allows.
Step
03
Use the LVR formula
Divide the loan amount by the property value, then multiply the result by 100 to get the LVR percentage.
Step
04
Check the 80% line
Work out whether your LVR sits at, below or above 80%, because this commonly affects LMI and policy options.
Step
05
Allow for purchase costs
Keep stamp duty, legal fees, inspection costs and moving costs separate so you do not overstate your real deposit.
Step
06
Compare lender pathways
Different lenders may accept different LVRs depending on loan type, property type, income evidence and borrower strength.
How loan-to-value ratio works in Australia
Loan-to-value ratio is one of the first numbers lenders look at because it shows how much of the property value is being borrowed. The formula is simple: loan amount divided by property value, multiplied by 100. A $720,000 loan against a $900,000 property is an 80% LVR.
The lower the LVR, the more equity sits in the deal. This can reduce lender risk and may create more lender options. A higher LVR does not automatically mean the loan will be declined, but it can bring tighter policy, extra documentation, LMI or lower lender appetite depending on the file.
For purchases, the lender usually relies on the lower of the contract price and valuation. That is why the property valuation can change your LVR even after you have agreed on a purchase price.
For investment borrowers, LVR sits alongside rental income, serviceability, credit conduct and lender policy. If your LVR is above 80%, you should also understand lenders mortgage insurance before applying.
Get help understanding your LVR
LVR can affect lender choice, deposit requirements, LMI exposure and refinance options. Understanding the numbers before applying can help you avoid avoidable surprises.
Property Finance Help connects users with finance professionals who can help review the finance pathway for the property, loan purpose and lender policy fit.
Property Finance Help is a lead generation service, not a lender, broker, or financial adviser. All information on this website is general in nature and does not take into account your personal objectives, financial situation, or needs. Consider seeking independent professional advice before making any financial decision.
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