In a nutshell
LVR, or loan-to-value ratio, is the amount borrowed against a property expressed as a percentage of that property's value. A $600,000 loan against a property valued at $1,000,000 is an LVR of 60%. In property-secured business lending, each lender sets a maximum LVR for each type of property and loan, and that maximum — applied to the valuation, less any existing mortgage — largely decides how much you can borrow.
Key points
- LVR = total secured debt ÷ property value × 100.
- Second mortgages and caveats are assessed on combined LVR across all loans on the property.
- Maximum LVRs vary by property type, location, loan ranking and lender.
- Capitalised interest counts towards the LVR on short-term loans.
- Formula
- Loan ÷ value × 100
- Second mortgages
- Combined LVR
- Set by
- Each lender's policy
- Driven by
- The valuation
If you remember one number from property-secured lending, make it LVR. It links the value of your property, the debt already on it and the maximum a lender will allow into a single percentage. Once you understand it, you can estimate your own borrowing capacity before you ever speak to a lender.
How is LVR calculated?
The formula is simple:
LVR = total loans secured on the property ÷ property value × 100
“Total loans” means every loan secured against that property — your existing home loan, any second mortgage and the new loan you’re asking for. “Property value” is the lender’s valuation, not your own estimate or an online figure.
| Property value | Total secured debt | LVR |
|---|---|---|
| $800,000 | $320,000 | 40% |
| $800,000 | $480,000 | 60% |
| $800,000 | $600,000 | 75% |
| $1,500,000 | $900,000 | 60% |
Figures are illustrative.
How does LVR decide how much you can borrow?
Lenders work backwards from their maximum LVR:
- Take the valuation.
- Multiply by the lender’s maximum LVR for that property and loan type.
- Subtract existing secured debt.
- What’s left is the most the lender will advance against that property.
For example, with a $1,000,000 valuation, a maximum LVR of 70% (illustrative only) and an existing $400,000 home loan, the ceiling is $700,000 − $400,000 = $300,000. Whether you can borrow all of it then depends on the rest of the assessment — purpose, exit or serviceability, and credit history.
What is combined LVR?
When a new loan sits behind an existing one — a second mortgage or a caveat loan — lenders look at combined LVR: all loans on the property added together. The second lender cares about the total, because it’s repaid only after the first lender. That’s why a property with a large first mortgage may have little room for a second loan, even if its value is high.
What moves a lender’s maximum LVR?
| Factor | Tends to allow a higher LVR | Tends to lower the LVR |
|---|---|---|
| Property type | Standard house or unit | Specialised commercial, rural, vacant land |
| Location | Established metro suburbs | Small towns, single-industry areas |
| Ranking | First mortgage | Second mortgage or caveat |
| Valuation type | Full inspection | Desktop or kerbside estimate |
| Loan term and structure | Monthly interest paid | Capitalised interest over a longer term |
| Exit | Confirmed sale or refinance | Uncertain or distant exit |
Each lender draws these lines differently, which is why two lenders can offer quite different amounts against the same property. A specialist who knows those differences can point you to the lender whose appetite fits.
How does capitalised interest affect LVR?
On short-term and bridging loans, interest is often capitalised — added to the balance instead of paid monthly. The lender then calculates LVR on the balance it expects at the end of the term, including all that interest. So a loan with capitalised interest will show a lower day-one advance than one where interest is paid monthly, even at the same maximum LVR. See repayment structures.
Can you improve your LVR?
- Offer additional security. A second property can bring the combined LVR down.
- Reduce existing debt on the property before applying.
- Get a full valuation. It may support a higher figure than a desktop estimate — though it can also come in lower.
- Borrow in stages. Take what you need now and revisit once the property or business has grown.
- Split the need. Fund equipment separately through equipment finance so less rests on the property.
Why does LVR matter to you, not just the lender?
A lower LVR usually means more lender choice, better terms and a bigger buffer if property values fall. A high LVR leaves less room for error: if the value dips or the exit slips, refinancing becomes harder. Knowing your LVR helps you decide how much of your equity to commit, and how much to keep in reserve.
LVR and different loan types
LVR drives property-secured business loans most directly, but it shows up elsewhere too. Equipment financiers think in similar terms about an asset’s value against the amount owing, which is why older equipment may need a deposit. Invoice financiers apply an advance rate to eligible invoices, a close cousin of LVR. The underlying question is the same: how much of the asset’s value is the lender prepared to advance?
Terms used in this entry
- Equity — the value of a property minus what’s owed on it. Glossary →
- Valuation shortfall — when a valuation comes in below expectations and reduces the loan available. Glossary →
- Priority — the order in which lenders are repaid from the same property. Glossary →
- Loan-to-cost ratio — a related measure used in development and acquisition lending. Glossary →
Worked example (illustrative)
Illustrative only. A café owner and her partner own a home they believe is worth about $1.1m, with $520,000 owing. She wants $250,000 to buy a second café.
The lender’s valuer assesses the home at $1.05m. With an illustrative maximum combined LVR of 70% for a second mortgage on that property type, the total secured debt can reach $735,000. After the existing $520,000, the ceiling is $215,000 — less than she hoped. She funds the coffee machines and fit-out equipment through equipment finance instead, bringing the property-secured amount within the limit.
Want to know what your equity could support?
A quick estimate of your LVR tells you a lot, but lender appetite is what decides the outcome. Enquiring takes about 60 seconds, there’s no credit check when you first enquire, and your details aren’t handed out to a list of lenders. A real person reviews your property and plans, then calls you. Please give your best estimate of the property’s value and exactly what’s owing so we can match you with the right lender first time.
Frequently asked questions
How do I calculate my LVR?
Add up all loans secured against the property (including the new one), divide by the property's value, and multiply by 100. For example, $450,000 of total borrowing against a $750,000 property is an LVR of 60%.
What is a good LVR for a business loan?
Lower is always safer for the lender, which usually means more choice and better terms for you. Each lender sets its own maximum for each property type and loan, so there isn't one 'good' figure.
Does the LVR use the purchase price or the valuation?
For existing property, it's based on the lender's valuation. For a purchase, many lenders use the lower of the price and the valuation.
Why is the maximum LVR lower for some properties?
Properties that are harder to sell, more specialised, in smaller markets or more volatile in value carry more risk, so lenders leave a bigger buffer.
Does capitalised interest affect LVR?
Yes. When interest is added to the balance, the lender calculates LVR on the balance expected at the end of the term, which reduces the amount available on day one.