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What is LVR (loan-to-value ratio)?


When it comes to home loans, a term that appears frequently is the loan-to-value ratio, often shortened to ‘LVR’. So what does it mean? Here’s what you need to know about LVR before you buy a home.

Put simply, LVR is a percentage showing the ratio of the borrowed amount to the value of the property. It’s commonly used by lenders to assess the risk of a home loan.

A high LVR can suggest a higher level of risk to the lender.

If a lender needs to sell a property with a high LVR because a borrower can’t make repayments, there is a higher risk that the sale price might not cover the amount borrowed. This means the lender would not recover the full loan amount.

Likewise, a property with a lower LVR represents less risk to the lender, as the market value is more likely to cover the cost of the loan if the bank needs to sell on behalf of the borrower.

Why is this important to you? A lower LVR usually translates to a lower interest rate for the borrower.

How is LVR calculated?

You can calculate the loan-to-value ratio by dividing the loan amount by the bank valuation – the value the lender calculates for the property (this may not necessarily match the market value – more on that below).

Let’s say you want to buy a place for $510k, the bank valuation is $500k, you have a $60k deposit and want to borrow $450k. You’ve also factored in other costs, like stamp duty, LMI and legal expenses. We’ll use the bank valuation – not the purchase price – in the calculation of your LVR.


  • Dividing $450,000 by $500,000 will give you 0.9
  • Multiply by 100 to get a percentage (0.9 x 100 = 90%)
  • Your LVR will be 90%.

With 90% LVR, you’ll need to pay LMI costs and your loan might have a higher interest rate. But if you borrowed only $400k and increased your deposit to $110k, you’d bring your LVR down to 80%.


  • Dividing $400,000 by $500,000 will give you 0.8
  • Multiply by 100 to get a percentage (0.8 x 100 = 80%)

Your LVR will be 80%.

In addition to the initial deposit, keep in mind that there may be other costs to factor in when buying a home, such as stamp duty and legal costs. Read more about the upfront costs involved in buying a property.

Which property value is used – the market value or bank value?

Sometimes, there is a difference between what a property is expected to sell for (market value) and the value a lender estimates for it (bank valuation).

Market values are usually calculated using current sales trends in the surrounding areas. They’re used only as an indication for how much the property could be sold for.

There’s a difference between the market value (which is the price you pay for the property) and the bank’s valuation, which is influenced by things like location, property attributes, zoning areas, public transport and schooling. 

A bank valuation is typically more conservative than the market value, because it lowers the risk of the loan for the lender.

If your bank valuation is lower than the current market value, you may need to add more to your deposit to make up the shortfall. In practical terms, this means if you want to buy an apartment for $500,000 and you have a $50,000 deposit, but your lender only values the apartment at $450,000, you’ll need to come up with an extra $50,000 to cover the difference.

Fortunately, in most cases your lender will order a bank valuation during the cooling off or finance period, so you will know before you purchase the property whether there is any shortfall you need to cover. If you’re buying at an auction, it’s vital you speak to your lender before you bid, as the bank valuation may only be calculated after the auction.

Once you’ve applied for your home loan and you’re looking for full approval, we’ll arrange for an online bank valuation based on similar sales and local property market trends. If need be, we’ll arrange for an on-site valuation too. For private sales we can organise a bank valuation during the cooling off or finance period, so you’ll know if there’s any shortfall you need to cover. If it’s an auction, talk with us before bidding, as your bank valuation might only happen after the auction. ​

What if your LVR is over 80%?

When the LVR on a loan is more than 80%, your interest rate may be higher. Additionally, you will generally need to pay for Lenders Mortgage Insurance (LMI). LMI is designed to protect the lender if you can’t meet your repayments and default on your home loan. In such a scenario, should your property sell for less than what you owe, then LMI will cover the shortfall for the lender.

It’s important to understand that LMI is designed to protect the lender and not the borrower. The good news is in many cases the premium for your LMI can be added to your home loan, so it won’t need to be paid up front.


Using a guarantor

Having a friend or family member act as guarantor on your loan could help you buy a home with a LVR greater than 80% and without having to pay LMI.

At St.George, this is known as a Family Pledge^ loan. It allows a family member to use equity in their home to guarantee a portion of your home loan without having to pay any money for your deposit up front.

The higher the LVR, the higher the repayments

Repayments are often larger on home loans with a higher LVR. This may be as a result of the LMI premium being added to the loan amount or the lender charging higher interest rates to counter the risk of lending.

When working out what you’ll be able to afford in repayments, make sure you take into consideration any changes to your circumstances in the future. It’s also important to keep in mind that interest rates can fluctuate over time, which could also cause your repayments to change.

LVR recap

Here are four key points to keep in mind about LVR:

  • LVR is a percentage showing the ratio of your borrowing amount to the value of the property you’re buying.
  • You can calculate the LVR on a property by dividing the loan amount by the lender-assessed value.
  • If your LVR is 80% or more your interest rate may be higher and you’ll typically need to pay for LMI.
  • A Family Pledge loan could allow a family member to act as guarantor if you need a loan with an LVR of more than 80%.


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Important information

This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.

^Family Pledge Credit criteria, fees, charges, T&C's apply. Your Australian family members will be required to seek independent legal advice before offering their home to guarantee a loan.

1. Credit criteria apply to the assessment of the adequacy of any proposed guarantee limit.

2. Owner-builder applications are excluded. Other exclusions may apply.

LVR stands for the initial loan to value ratio. LVR is the amount of your loan compared to the Bank’s valuation of your property offered to secure your loan expressed as a percentage. Home loan rates for new loans are set based on the initial LVR and won’t change during the life of the loan as the LVR changes.