LVR stands for loan-to-value ratio. It's the size of your loan as a percentage of what the lender thinks the property is worth. Borrow $1,200,000 against a home valued at $1,500,000 and your LVR is 80 per cent. That one number decides whether you pay lenders mortgage insurance, which lenders will take the loan, how sharply some of them price it, and how much equity you can draw on later.

It sounds like arithmetic, and mostly it is. The catch is in the detail: which value the lender uses, what counts as the loan, and why 20 per cent of the price is not the same thing as having 20 per cent of the cash you need.

The formula

LVR = loan amount ÷ property value × 100.

A few quick examples:

  • $900,000 loan on a $1,000,000 apartment: 90 per cent.
  • $1,280,000 loan on a $1,600,000 house: 80 per cent.
  • $1,050,000 loan on a $2,100,000 house: 50 per cent.

The inverse is your deposit, or your equity. At 80 per cent LVR you're putting in, or already hold, 20 per cent of the value.

Which value? Usually the lower one

When you're buying, the lender uses whichever is lower: the price you agreed to pay or its own valuation. Most of the time the two line up. When they don't, it's the lender's figure that counts, and your LVR jumps without the loan changing at all.

Say you agree to pay $1,600,000 and plan to borrow $1,280,000. That's 80 per cent. If the valuation comes back at $1,500,000, the same loan is now about 85 per cent, which can mean mortgage insurance you hadn't budgeted for. We go through that situation and the ways out of it in bank valuation lower than the purchase price.

When you refinance or borrow against equity, there's no purchase price, so it's the valuation alone. That's why owners are sometimes surprised: the figure on a property website isn't the one the bank uses.

Why 80 per cent matters so much

Above 80 per cent, most lenders add lenders mortgage insurance. LMI protects the lender, not you, and the premium climbs steeply as the LVR rises. Borrowing 90 per cent costs noticeably more in LMI than 85, and 95 is more again. Our LMI guide covers how it's charged and the ways around it.

There are exceptions. Under the government's 5% Deposit Scheme, eligible buyers can borrow up to 95 per cent without paying LMI. Some lenders waive or cut LMI for certain professions, such as doctors, at higher LVRs. And a family guarantee can bring the effective LVR down by using a parent's property as extra security.

It also changes how you're priced

LMI is the obvious cost, but it isn't the only one. Many lenders price in LVR bands, so the same borrower may be offered a sharper rate at 70 per cent than at 85. The bands and the gaps between them vary by lender and change often, so we won't list them here. The point is that a few per cent of LVR either side of a band edge can be worth something, and it's one reason we look at the numbers before you settle on how much to borrow.

The maximum LVR isn't the same for every loan

How high a lender will go depends on the loan and the property, not just on you. In general:

  • Owner-occupied homes can usually go to 90 or 95 per cent with LMI, for borrowers who qualify.
  • Investment loans often have a lower ceiling, and some lenders apply tighter rules on top.
  • Small apartments can be capped lower. Many lenders set a minimum internal floor area, and studios or very compact units may only be accepted at a reduced LVR. This comes up a lot around Chatswood, St Leonards and North Sydney. See buying an apartment on the Lower North Shore.
  • Unusual security, such as company title, large acreage or a property with a non-standard use, tends to come with a lower maximum and fewer lenders.
  • Large loans are often subject to their own limits, with the maximum LVR stepping down as the loan size goes up.
  • Self-employed borrowers using alternative income evidence may be held to a lower LVR than those with full financials.

20 per cent of the price isn't 20 per cent of the cost

This is where first home buyers get caught. An 80 per cent LVR means a deposit of 20 per cent of the property value. It doesn't cover transfer duty, legal and conveyancing fees, building and pest inspections, or the lender's own fees. On a North Shore or Northern Beaches house, duty alone runs well into the tens of thousands unless you qualify for a concession.

So if you're aiming to avoid LMI, the cash you need is the 20 per cent plus all of that on top. Our deposit guide sets out the full list.

LVR and the equity you can use

For owners, LVR works the other way round. It tells you how much of your home's value you can borrow against. The usual approach is to take 80 per cent of the current valuation and subtract what you already owe.

Home valued at $2,000,000, loan of $900,000. Eighty per cent of the value is $1,600,000, so the usable equity is $700,000 before LMI comes into it. Whether you can actually borrow that much is a separate question. It still has to pass the lender's serviceability test on your income. More on that in how much equity can I use.

If you have more than one property with the same lender, it may look at the combined LVR across all of them. That's one of the reasons we often keep investment loans with a different lender from the home, so one property isn't tied up as security for another.

Ways to bring your LVR down

  • A bigger deposit, obviously, including a cash gift from family. Lenders will want a signed gift letter.
  • A family guarantee, which adds security instead of cash.
  • A slightly cheaper property. With $285,000 left to put in after costs, a $1,500,000 purchase works out at an LVR of about 81 per cent. At $1,400,000 it's just under 80, which can mean no LMI at all.
  • Challenging a low valuation with genuinely comparable recent sales, when there's a case for it.
  • Paying the loan down before a refinance, or waiting for a renovation to finish so the valuer sees the finished home.

A quick check before you start

Work out three numbers: the price range you're looking at, the cash you'll have after costs, and the LVR that leaves you with. If it sits just above a threshold, small changes can make a real difference. If it's well above 80, it's worth deciding early whether you'd rather pay LMI and buy sooner or save for longer.

We help buyers and owners across Chatswood, Mosman, Manly, the Upper North Shore and the Northern Beaches work this out every week, across more than 60 lenders. Talk to a Sabea broker or call 1300 001 755.

Frequently asked questions

What is LVR in a home loan?

LVR, or loan-to-value ratio, is the loan amount as a percentage of the property's value. A $800,000 loan on a $1,000,000 property is an 80 per cent LVR.

What value do lenders use to work out LVR?

When you're buying, it's usually the lower of the purchase price and the lender's valuation. When you refinance or release equity, it's the lender's valuation.

What LVR do I need to avoid LMI?

Generally 80 per cent or lower. Exceptions include the government's 5% Deposit Scheme for eligible buyers, LMI waivers some lenders offer certain professions, and family guarantee loans.

What is the maximum LVR in Australia?

For owner-occupied homes it is commonly 90 to 95 per cent with LMI, for borrowers who qualify. Investment loans, small apartments, large loans and unusual properties often have lower limits, and these vary between lenders.

Does stamp duty count towards my deposit for LVR?

No. LVR only compares the loan to the property value. Transfer duty, legal fees and other costs are paid on top, so you need more cash than the deposit alone.

How do I calculate my usable equity?

A common approach is 80 per cent of the lender's valuation minus your current loan balance. Whether you can borrow that amount still depends on your income and the lender's serviceability assessment.

General information only. It does not take your objectives, financial situation or needs into account, and it is not credit or financial advice. Lender policy, rates and eligibility change regularly and vary between lenders — talk to us about your own circumstances before acting on anything here.