What is loan to value ratio (LVR)?

2 June 2026 * 5-minute read

When getting into the property market, you’ll be exposed to all sorts of jargon, some of which may be new to you. Terms such as vendor, conveyancing, exchange of contracts, cooling-off periods, settlement dates, stamp duty and Lenders Mortgage Insurance (LMI) all need to be understood.

One of them might be ‘LVR’. If you’re applying for a loan to buy a property, your lender is likely to use the term ‘loan to value ratio' (shortened to LVR). So what is loan to value ratio? 

Put simply, LVR is your loan amount divided by the property value, expressed as a percentage. It's a measure of how much the loan is compared to the value of the property and therefore an indication of how risky your loan is to the lender based on your deposit size.

Key take-outs

• LVR is the percentage of a property's value covered by a home loan
• Lenders use LVR to help assess the risk of a loan
• An LVR over 80% may result in a higher interest rate being applied
• A higher LVR may also require the borrower to pay Lenders Mortgage Insurance (LMI)
• Paying a larger deposit will help reduce LVR.

Questions answered

• Why is loan to value ratio (LVR) important when applying for a home loan?
• How do you work out LVR?
• Can I get a loan if my LVR is more than 80%?
• What are the potential downsides of a higher LVR?
• Can I avoid paying Lenders Mortgage Insurance?

Why is loan to value ratio important when applying for a home loan?

Banks commonly use LVR to help assess the risk of a loan. A higher LVR means the bank is lending a larger proportion of the property’s value, which increases its risk due to the reduced equity position. Equity is the difference between the value of the property and the amount owing on the loan.

It's important to note that the property value used to calculate LVR is a bank valuation carried out by a professional valuer. The figure may be different from the estimated market value provided by a real estate agent, an advertised property price, or an actual purchase price. 

How do you work out LVR?

LVR is calculated by dividing the amount you are borrowing by the bank's valuation of the property, multiplied by 100. 

LVR = (Loan amount ÷ value) x 100

LVR example:

You want to buy a $1,000,000 property and you have a deposit of $200,000, so you'll need to borrow $800,000.

LVR = (800,000 ÷ 1,000,000) x 100 = 80%

If your LVR is 80% that means your deposit is 20% of the property value, which is generally the preferred minimum for most lenders – though you could still have options with a smaller deposit (see later).

A larger deposit gives you a lower LVR, which could make it easier to get a loan and may lead to lower interest rates and repayments. When working out how much you have for a deposit, it's important to consider other upfront costs, such as legal fees, stamp duty and Lenders Mortgage Insurance. 

Can I get a loan if my LVR is more than 80%?

If you're applying for a loan with an LVR that's more than 80%, you're likely to have to pay for Lender's Mortgage Insurance. The insurance is organised by the lender but is paid for by the borrower. Insuring higher‑LVR loans helps protect the lender against loss if the property is sold and the sale proceeds are not enough to repay the home loan.

LMI may allow you to buy a home with a smaller deposit. Sometimes, the cost can be added to your loan, instead of being paid upfront.

An alternative to LMI (or in addition to it) is to ask a family member to act as a guarantor to offset the risk. A guarantor provides additional security for the loan but needs to understand that they may have to repay part of the loan if the borrower can’t. 

What are the potential downsides of a higher LVR?

At first glance, it may seem that the higher your LVR the more borrowing power you have, because you’re using a smaller deposit. However, borrowing more than 80% of a property’s value can come with some trade‑offs, as it represents a higher risk to the lender.

• Higher interest rates – the lender will often charge higher interest rates to offset the higher risk of lending. 
• Higher home loan repayments – a higher interest rate means higher repayments, which can be further increased when Lenders Mortgage Insurance is added to your loan amount. 
• Application scrutiny – with a higher LVR, your application may be scrutinised more closely to make sure you are able to cover regular repayments.

Can I avoid paying Lenders Mortgage Insurance?

The Australian Government’s Home Guarantee Scheme is designed to help eligible first home buyers, including singles, couples, and single parents or legal guardians, buy a home sooner with a smaller deposit. Under this scheme, eligible participants can purchase a home with as little as a 5% deposit without needing to pay LMI. There is also a scheme within the HGS for people who have owned a property previously. 

 For more information visit the First Home Buyers website.