LVR explained - and why it controls your rate
Loan-to-value ratio (LVR) is the ratio of your loan to the property’s value, expressed as a percentage. An $800,000 loan on a $1,000,000 property is 80% LVR. It’s the single number that most heavily influences your home loan rate - often more than your income, your deposit amount or your credit score.
Why lenders care so much
LVR is a risk measure. If you default and the lender has to sell the property in a forced sale, they typically recover 80-90% of market value (faster sales lose value). A 70% LVR loan is nearly always fully recoverable; a 95% LVR loan is not, unless market conditions are favourable.
The pricing bands
Most Australian lenders price home loans in bands that line up with LVR thresholds:
- ≤60% LVR - best pricing, often 25-35 bps below the standard rate
- 60.01-70% - standard sharp pricing
- 70.01-80% - standard pricing, no LMI
- 80.01-85% - rate premium of 10-20 bps plus LMI
- 85.01-90% - rate premium of 15-25 bps plus LMI
- 90.01-95% - rate premium of 25-40 bps plus LMI
- >95% - available from some lenders with family guarantee, sharp risk pricing
Moving from 81% to 79% LVR can save 30 bps plus avoid LMI. On a $700,000 loan that’s about $45,000 over the life of the loan, for the cost of a slightly larger deposit.
The valuation risk
The ‘value’ in LVR is the lender’s valuation, not your contract price. If the lender values the property at less than you paid, your LVR goes up. On a $1M purchase with $800,000 loan, a valuation that comes in at $950,000 pushes you from 80% LVR to 84% LVR - and now you’re in LMI territory.
Off-the-plan purchases settling 2-3 years after contract are the biggest valuation risk. A contract signed in 2024 for settlement in 2027 exposes you to whatever the market does in between.
The LVR tricks
Three techniques to manage your LVR:
- Combine purchase price with borrower funds. Stamp duty and legals come out of your pocket, not the loan. So a $1M purchase with $200k deposit and $55k closing costs needs only $800k loan - 80% LVR exactly.
- Cross-collateralise cautiously. If you own another property with equity, using it as additional security can drop your effective LVR on the new purchase.
- Family pledge. A parent’s property can form part of the security, capping your main loan at 80% LVR and avoiding LMI entirely.
The direction of travel
Under APRA’s current guidance, lenders remain conservative on high-LVR investment loans. Expect 85% LVR to be the practical ceiling for most investment purchases, with 90% available at a rate premium and LMI for owner-occupier.