Loan to Value Ratio (LVR) is one of those acronyms you’ll see everywhere if you’re thinking about buying property or refinancing in Australia. But in 2025, with new banking regulations and shifting property prices, understanding your LVR is more crucial than ever. Whether you’re a first-home buyer, a seasoned investor, or simply curious about how lenders size up your application, here’s what you need to know.
What Exactly Is Loan to Value Ratio (LVR)?
LVR is a simple percentage that measures how much you’re borrowing compared to the value of the property you’re buying. It’s calculated like this:
- LVR (%) = (Loan Amount ÷ Property Value) x 100
For example, if you want to buy a home worth $800,000 and you have a $160,000 deposit, you’d be borrowing $640,000. Your LVR would be:
- ($640,000 ÷ $800,000) x 100 = 80%
The lower your LVR, the less risk you pose to the lender. That’s why LVR is front and centre in almost every home loan discussion.
Why LVR Matters More in 2025
Recent shifts in the Australian property market and regulatory landscape have put LVR under the spotlight:
- APRA’s 2025 Lending Guidance: The Australian Prudential Regulation Authority (APRA) continues to monitor high-LVR lending, urging banks to be cautious with loans above 80% LVR. This means stricter scrutiny for borrowers with smaller deposits.
- Property Price Fluctuations: As property values adjust in different regions, your LVR can change even after you buy, impacting your refinancing options and risk of negative equity.
- Lenders Mortgage Insurance (LMI): If your LVR is above 80%, you’ll likely pay LMI, which can add thousands to your upfront costs. Some lenders are also adjusting their LMI premium structures in 2025 to reflect updated risk models.
LVR isn’t just a number—it can affect your interest rate, your upfront costs, and even whether your loan gets approved at all.
How to Improve Your LVR (and Save Big)
If you want to get the best home loan deals, lowering your LVR is key. Here’s how:
- Save a Larger Deposit: The obvious one—every extra dollar you can put down shrinks your LVR and your lender’s risk.
- Consider Cheaper Properties: If your budget is tight, looking at slightly less expensive homes can improve your LVR and help you avoid LMI.
- Leverage Government Schemes: In 2025, the First Home Guarantee scheme still allows eligible first-home buyers to buy with as little as 5% deposit and avoid LMI. Check if you qualify.
- Property Value Reassessment: If your property has increased in value since purchase, a formal revaluation could reduce your current LVR and open up better refinancing deals.
Remember, even small changes can make a big difference. For example, moving from a 90% to an 80% LVR could save you tens of thousands in LMI and get you a sharper rate.
Real-World Examples: LVR in Action
Let’s see how LVR plays out for different borrowers:
- First-Home Buyer in Sydney: Jane is buying a $950,000 apartment with a $100,000 deposit. Her LVR is 89.5%, so she needs to pay LMI—unless she’s eligible for the First Home Guarantee.
- Investor in Melbourne: Sam refinances his investment property after it rises in value from $700,000 to $900,000. With his remaining loan at $630,000, his new LVR is just 70%—qualifying him for lower rates and no LMI on the new loan.
- Regional Buyer in Queensland: The Smiths buy a $550,000 home with a $110,000 deposit. Their 80% LVR lets them avoid LMI and puts them in line for special low-LVR rate offers from select lenders.
What to Watch for in 2025
- Lender Policy Changes: Some banks have tightened credit criteria for high-LVR loans in 2025, especially for investors or those with unstable incomes.
- Interest Rate Discounts: Borrowers with LVRs below 70% are seeing the most aggressive rate discounts—sometimes 0.2–0.5% lower than standard offers.
- Dynamic LVR Assessments: New digital valuation tools mean lenders can reassess your property value (and thus your LVR) more frequently, affecting your refinancing power.
LVR is more than just a hurdle—it’s a lever you can pull to save money, strengthen your application, and set yourself up for long-term financial security.
