Quick answer
Loan-to-value ratio, or LVR, is the total debt secured against a property divided by the property's value, shown as a percentage. Lenders set maximum LVRs to protect themselves if the property ever has to be sold. The lower the LVR, the safer the loan looks, and the more choice and flexibility you'll usually have.
Key points
- LVR equals total secured debt divided by property value.
- Maximum LVRs vary by property type, location and lender.
- Second mortgages are assessed on the combined debt.
- A lower LVR usually means more options.
- Formula
- Total secured debt ÷ property value × 100
- Value used
- The lender's valuation, not the owner's estimate
- Includes
- Every loan secured on the property
- Credit check to enquire
- None
For any property-secured business loan, one number shapes the conversation more than any other: the loan-to-value ratio. It decides how much a lender is prepared to advance, which lenders are available, and often how the loan is structured. Understanding it before you apply saves a lot of guessing.
How LVR is calculated
The formula is simple. Add up every debt that will be secured against the property, including the new loan. Divide that total by the property’s value. Multiply by 100 to get a percentage.
So if a property is valued at $1,000,000, has an existing mortgage of $400,000 and you want to borrow another $200,000, the total secured debt is $600,000 and the LVR is 60%.
Two details trip people up. First, the value is the lender’s valuation, not your estimate or an agent’s appraisal. Second, every loan on the title counts, whichever lender holds it. A second mortgage lender looks at the combined figure, not just its own slice.
Why lenders cap LVR
LVR is the lender’s safety margin. If the loan ever goes bad and the property has to be sold, the sale may happen in a soft market, take months and incur agent and legal costs. The gap between the loan and the value is what protects the lender against those losses.
That’s why lenders set a maximum LVR and why the maximum varies. Easy-to-sell properties in strong locations get higher limits. Properties that are harder to sell, smaller or more specialised get lower ones.
What changes the LVR limit
Property type. Standard residential homes usually attract the highest limits. Commercial and industrial property, vacant land, rural holdings and unusual properties such as small units or mixed-use buildings tend to get lower ones.
Location. Metropolitan and major regional centres with plenty of comparable sales are favoured over remote areas or small towns.
Loan position. A first mortgage lender takes less risk than a second mortgage or caveat lender, which may affect how far it will go.
The lender’s appetite. Banks, non-bank lenders and private funds each set their own limits, and those limits shift with market conditions.
The borrower’s overall profile. Strong serviceability and a clean credit history can sometimes support a higher LVR, while a weaker profile can pull the limit down.
From LVR to usable equity
Once you know a lender’s maximum LVR, you can estimate usable equity. Multiply the expected valuation by the maximum LVR, then subtract the existing debt. What remains is the most the property might support, subject to serviceability.
Our property equity and LVR calculator does this for you and lets you test different values and limits. If you’re thinking about releasing equity for business, it’s a sensible first step.
Using more than one property
If one property doesn’t provide enough equity, a second property can be added as security. Lenders then look at the combined LVR across both. This is common where a director’s home and an investment property together support a larger company loan. It does increase what’s at stake, so think carefully about which assets you’re comfortable offering.
Ways to improve your LVR
You can’t change what a property is worth, but you can influence the outcome. Paying down part of an existing loan, adding a second property as security, or borrowing a little less can all bring the LVR into range. Providing a recent, realistic appraisal and details of recent improvements can also help the valuer reach a fair figure. Our page on property valuations explains what valuers look at.
A worked example with two lenders
Picture a company director with a house valued by the lender at $1,200,000 and a home loan of $500,000. Lender A caps residential security at a fairly high LVR for this kind of loan; Lender B, a second mortgage lender, is more conservative and also wants to see a solid repayment history on the first loan. With Lender A refinancing everything into one first mortgage, the usable equity is larger, but the process takes longer and the existing home loan has to be paid out. With Lender B, the existing loan stays put and the new money arrives faster, but the combined LVR cap is lower, so less can be released. Neither answer is wrong. The right one depends on how much you need, how soon and for how long, which is why it pays to see both options side by side before choosing.
What happens if the value changes later
LVR is set at the start of the loan, but property values move. If values fall, the LVR on your loan quietly rises, even though you haven’t borrowed another cent. For most term loans that doesn’t trigger anything on its own, but it matters when you come to refinance, extend or borrow more, because the new lender will order a fresh valuation. If values rise, the reverse happens and you may have more usable equity than you think. It’s worth checking every year or two.
Find out where your LVR sits
Tell us the property’s rough value, what’s owed against it and what you need through our quick enquiry form. There’s no credit check to enquire, your file stays with one team, and a real person will tell you which lenders are likely to fit your LVR and what they might advance. Work out your equity.
Frequently asked questions
How do I calculate LVR?
Add up all the debt secured against the property, including the new loan, divide by the property's value and multiply by 100. For example, total debt of $600,000 against a value of $1,000,000 is an LVR of 60%.
Why is the lender's valuation lower than my estimate?
Valuers are conservative and base their figure on comparable sales and how quickly the property could be sold. Agents' appraisals are often aimed at the top of the market.
Do second mortgage lenders use LVR?
Yes, on the combined debt. If your first mortgage already takes the LVR close to the limit, there may be little room for a second loan.
Does a lower LVR guarantee approval?
No. Lenders still look at serviceability, credit history and the purpose of the loan. A low LVR makes approval easier, but it isn't the only test.