Quick answer
Loan-to-value ratio, or LVR, is the total debt secured against a property divided by its value, expressed as a percentage. For a second mortgage, the first mortgage balance is included. Lenders set maximum LVRs based on property type, location, loan position and term. Knowing your LVR shows how much usable equity you have before you apply for a property-secured business loan.
Key points
- LVR equals total secured debt divided by property value
- Second mortgages count the first mortgage in the total
- Acceptable LVR depends on property type, location and position
- Lower LVR means more room and usually better terms
The simple formula
LVR is total debt secured against a property divided by the property’s value, multiplied by 100. If a property is worth a given amount and the debt against it is forty per cent of that, the LVR is forty per cent. For a property-secured business loan, the “total debt” includes any existing home loan or mortgage plus the new business loan.
The property equity calculator does this for you and shows how much usable equity sits within the LVR you choose.
Why lenders care
The LVR tells a lender how much cushion exists between the debt and the property’s value. A low LVR means that even if property prices fall or the property has to be sold quickly, there is room to repay the debt. A high LVR means little cushion. That is why lenders set a maximum LVR for each type of loan and property.
What affects acceptable LVR
Property type matters: houses in established suburbs are easier to value and sell than vacant land, rural property or specialised commercial buildings. Location matters: properties in major cities and large regional centres usually support higher LVRs than remote ones. Loan position matters: a first mortgage generally supports a higher LVR than a second mortgage or caveat, because the first lender is repaid first. Term and repayment plan also matter.
First and second mortgages
When a second mortgage or caveat sits behind a bank loan, the second lender looks at the combined LVR: bank loan plus new loan, divided by value. If the bank loan is modest relative to the value, there may be significant room behind it. See second mortgage business loans.
Using more than one property
If one property does not provide enough room, offering a second property, such as an investment unit, can reduce the overall LVR. Each owner of each property needs to agree and sign.
Interest added to the loan
On property-secured loans where interest is prepaid or added to the loan, the debt grows over the term. Lenders consider the projected balance at the end, not just the starting amount, so allow for it when estimating your LVR.
Estimating value without a valuation
Our property-secured loans need no valuation before approval. The property is assessed from recent comparable sales, title information and photos. For your own estimate, look at recent sales of similar properties nearby and use a conservative figure. Overestimating value leads to disappointment later. See no valuation business loans.
An illustrative example
An owner with a home and an investment unit wanted a business loan to clear tax and fund stock. Using the home alone produced a combined LVR above the lender’s preference for that suburb. Adding the unit as security brought the overall LVR comfortably within range, and the loan proceeded without a valuation.
LVR and pricing
Lower LVRs generally mean lower risk for the lender, which can mean better pricing and more flexibility. If you are close to a lender’s limit, reducing the loan slightly, adding a second property or paying down the existing mortgage can make a meaningful difference. It is worth running a few scenarios in the calculator before you apply.
When value is uncertain
Unusual properties, properties needing repairs and those in thin markets are harder to value from sales evidence alone. Provide photos, details of improvements and any recent appraisal you have. The more information the lender has, the more confidently it can assess the security.
Check your room
Property-secured business loans run of $20,000 up to $5,000,000. Take a minute to enquire with the property address, a rough value and what is owed. No credit check to ask, someone experienced reviews it, and nothing gets shared. Check your equity.
Frequently asked questions
How do I calculate my LVR?
Add all debt secured on the property, including the new loan, divide by the property's value and multiply by 100.
What LVR do lenders accept?
It varies widely. Residential property in major cities usually supports higher LVRs than vacant land or specialised commercial property.
Does a caveat loan count in LVR?
Yes. Lenders include all debt secured against the property, however it is secured.
Can I use more than one property?
Yes. Offering a second property can reduce the LVR across the security.
Do I need a valuation to know my LVR?
Not for an estimate. Our property-secured loans need no valuation before approval; properties are assessed from sales evidence.
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