What is home loan LVR?

At some point in your home buying journey, you may have come across the term "loan to value ratio" or LVR.

So what does this actually mean and how does it affect homebuyers?

What is LVR?

LVR stands for loan-to-value (or sometimes loan-to-valuation) ratio. It’s a percentage figure that compares how much a lender is willing to loan you against the total value of the asset you plan to buy.

It often tends to pop up in the context of home loans, where the asset in question is property.

Say you’ve saved up $50,000 for a home loan deposit, and you come across an apartment you like that’s advertised for sale at $500,000. In order to buy this property you’ll need to take out a mortgage of $450,000 (excluding all other costs including stamp duty).

In this case, and assuming the lender has also valued the property at $500,000, the LVR would be $450,000 ÷ $500,000 (x100) = 90%.

(Note that a lender will value a property and decide how much it is prepared to loan you based on its own valuation, not the advertised purchase price, which may be different.)

LVR and Lenders Mortgage Insurance

Some lenders may loan up to 95% of a property’s value as the LVR. But while this can mean you’re able to buy a property sooner, since you don’t have to save as long for your deposit, having a smaller deposit may mean you’re charged Lenders Mortgage Insurance or a Low Deposit Premium. The circumstances of your loan may also determine whether this will apply.

It’s also worth remembering the more you borrow up front, the more you’ll pay back in interest over time.

If you're buying a home for the first time, you may also be eligible for the Home Guarantee Scheme, an Australian Government guarantee designed for people on low and middle incomes to purchase a home with a deposit of as little as 5%. 

LVR and postcode restrictions

Some lenders may also cap the LVR on home loans according to the suburb in which a property is located. This is because lenders may impose stricter lending policies for areas or postcodes they consider higher risk – for example, where the property market may not be considered “active”.

Make sure you check this carefully with your lender before you apply for your home loan so you know exactly how much you need to save before proceeding with your application.