How LVR is calculated
LVR = loan amount ÷ security value × 100. If you are borrowing $1,300,000 against a property valued at $2,000,000, the LVR is 65%.
The number that matters is the total debt against the property, not just the new loan. If an existing first mortgage of $900,000 stays in place and a second mortgage of $300,000 is added behind it, a lender looks at the combined position — $1.2M against a $2M value, or 60% — because that is the level at which the second mortgagee is exposed.
Which 'value' lenders actually use
Private lenders do not use the price you paid, your opinion of value, or an online estimate. They use the value in a current independent valuation prepared by a panel valuer, and they almost always rely on the 'as is' market value rather than a hopeful future figure.
For development transactions, two further measures appear. Loan-to-cost (LTC) compares the loan to the total project cost. Loan-to-gross-realisation (LGR or LRV) compares the loan to the projected gross sales value of the finished product. A development facility may be quoted at, say, 65% of total development cost and 65% of gross realisation, and the binding constraint is whichever produces the smaller loan.
What LVR levels are typical
As a general guide in Australian private credit: first mortgages over metropolitan residential or standard commercial security often sit up to around 65–75% LVR; second mortgages and caveat positions are usually assessed on a combined basis to around 70–80%; specialised, rural or vacant land security attracts materially lower ratios because the asset is harder to sell quickly.
These are indicative ranges only. Every transaction is priced on its own facts, and no maximum is guaranteed.
Why LVR drives your interest rate
LVR is a proxy for risk. At 55% LVR the property can fall a long way in value and the lender still recovers the debt from a sale. At 78% LVR there is little room for a soft market, selling costs and unpaid interest. Lower LVR therefore attracts sharper pricing, larger facility sizes and faster approvals; higher LVR attracts higher rates or is declined outright.
If your LVR is too high for the pricing you want, the practical levers are adding a second property as security, contributing more equity, or reducing the loan by pre-selling part of the asset.
Key points
- LVR = loan ÷ security value, as a percentage.
- Lenders count total debt against the property, not only the new loan.
- Valuation is by an independent panel valuer, on an 'as is' basis.
- Lower LVR means sharper pricing; high LVR means higher cost or a decline.
Frequently asked questions
What LVR can I borrow to on a private loan?
Indicatively up to around 65–75% for first mortgages over standard metropolitan security, lower for specialised, rural or vacant land. Each deal is assessed individually and no maximum is guaranteed.
Does capitalised interest count in LVR?
Yes. If interest is capitalised, lenders look at the loan balance at the end of the term, so the 'exit LVR' is higher than the day-one figure and is usually the constraint.
Can I use my own valuation?
Sometimes a recent valuation can be relied on or reassigned, but most lenders require a valuation instructed by them from their own panel.