Loan to Value Ratio (LVR)

Loan to Value Ratio (LVR) is the loan amount divided by the value of the security property, expressed as a percentage. A $700,000 loan against a $1,000,000 property is a 70% LVR. It is the single most widely used measure of risk in property secured lending, and it is read from two directions: by the borrower as a measure of how much can be borrowed, and by the investor as a measure of how much cushion sits beneath their capital.

Why It Matters

For a borrower, LVR determines whether a deal is possible at all, and on what terms. Lenders set maximum LVRs by product, security type and borrower profile, and a lower LVR generally means better pricing and a wider choice of lenders. For an investor in a mortgage fund, LVR is the margin of safety: at 65% LVR, the property would need to fall by more than 35% before invested capital is exposed. Both readings describe the same ratio.

How It Works

Borrower view: LVR sets the deposit or equity required and drives pricing. Higher LVR usually means a higher rate, tighter policy, and in some cases lenders mortgage insurance on residential lending.
Investor view: LVR is the equity buffer. The lower the LVR, the further the property must fall before the loan is undersecured and capital is at risk. This is why private lenders and mortgage funds cap LVR conservatively.
The denominator matters: an as is valuation reflects current condition, while an on completion valuation reflects value once construction or works are finished. The same loan produces a very different LVR depending on which is used, and on completion figures assume the project is actually delivered.
Some lenders assess against forced sale value rather than market value, which lowers the denominator and therefore tightens the effective LVR.

Common Use Cases

Assessing borrowing capacity against an existing property
Pricing and structuring a second mortgage, where combined LVR across both facilities is what matters
Evaluating the risk of a loan in a contributory or pooled mortgage fund
Comparing development facilities, where LVR against GRV sits alongside LTC

Related Switchboard Resources

How is LVR calculated?

Divide the loan amount by the value of the security property and multiply by 100. Where there is more than one loan against the property, lenders usually assess the combined position across all facilities rather than each loan in isolation.

What LVR can I borrow up to?

It depends on the product and security. Standard residential lending commonly goes to 80% without mortgage insurance, while private and specialist lending is usually capped lower, often 65% to 75%, because those lenders are pricing for a faster exit.

Why do mortgage fund investors care about LVR?

Because it is the buffer protecting their capital. A 60% LVR loan can absorb a 40% fall in property value before the debt exceeds the security. Investors should also check whether the LVR is struck against an as is or on completion valuation, since on completion figures depend on the project being finished as planned.

General information only. This page explains a term used in Australian financial services law. It is general information, not legal or financial product advice, and does not take account of your objectives, financial situation or needs. Definitions and thresholds change. Confirm the current position on the Federal Register of Legislation or with a qualified professional before relying on it.