Loan-to-Value Ratio

Plain-English definition. The Loan-to-Value Ratio (LVR) is the loan amount expressed as a percentage of the property's value (purchase price or bank valuation, whichever is lower). It's the single most important risk metric in Australian home lending.

How it works in Australia. LVR drives almost every aspect of a home loan: pricing, LMI, product eligibility, equity release. Key thresholds: ≤60% LVR (premium pricing tier at most banks), ≤80% (no LMI), ≤90% (standard LMI applies), ≤95% (high-LMI premium territory), 95–98% (only with capitalised LMI or Home Guarantee Scheme). APRA's prudential standard APS 220 sets risk weights: a loan at 80% LVR has roughly half the regulatory capital cost of one at 90%, which is why banks aggressively price the 80% step. The LVR uses the bank's valuation, not the contract price.

Concrete example. Buy a $900,000 home with $180,000 deposit and $720,000 loan = 80% LVR, no LMI. If the bank valuation comes in at $850,000, the lender uses that lower figure: $720,000 ÷ $850,000 = 84.7% LVR — now LMI of around $15,000 applies, or you must increase your deposit by $40,000 to restore 80% LVR. This is why "subject to satisfactory valuation" clauses matter at auction.

Common confusion. Borrowers think LVR is calculated against the purchase price. It's actually against the lower of price or bank valuation — and bank valuations come in below contract price more often than buyers expect, especially in falling markets or for off-the-plan apartments.