Loan-to-Value Ratio (LTV) is the quiet gatekeeper of Australia’s lending world. Whether you’re chasing your first home, refinancing, or eyeing an investment property, your LTV will shape your rates, your borrowing power, and your chances of approval. With 2025 bringing policy tweaks and a shifting property market, understanding LTV is more important than ever.
What Is LTV and Why Do Lenders Obsess Over It?
The Loan-to-Value Ratio (LTV) is the percentage that compares your loan amount to the value of the property you’re buying or refinancing. The formula is simple:
- LTV = (Loan Amount ÷ Property Value) × 100
For example, if you want to borrow $600,000 for a property valued at $750,000, your LTV is 80%. The higher your LTV, the more risk the lender takes on. That risk translates into stricter lending criteria, higher interest rates, or mandatory Lenders Mortgage Insurance (LMI).
Lenders obsess over LTV because it’s a direct measure of their exposure. If property values fall or you default, a lower LTV means the lender is more likely to recover their money.
LTV in 2025: Regulatory Shifts and Market Trends
This year, LTV is firmly in the spotlight as Australian regulators and banks respond to ongoing housing affordability debates, APRA’s updated lending guidelines, and a cooling market in some capital cities. Here’s what’s changed in 2025:
- APRA’s New Guidance: The Australian Prudential Regulation Authority (APRA) has tightened scrutiny on high-LTV loans (above 80%) in response to rising arrears in some segments. Banks must now hold more capital against these loans, which can mean higher rates or tougher approvals for borrowers with small deposits.
- LMI Premiums Up: Lenders Mortgage Insurance (LMI) costs have risen slightly in 2025, particularly for LTVs above 85%. If you’re borrowing with less than a 15% deposit, expect a higher upfront or capitalised LMI bill.
- First Home Buyer Schemes: The expanded First Home Guarantee lets eligible buyers purchase with as little as 5% deposit, but banks are still cautious about LTV. Some lenders offer special rates for lower-LTV borrowers, making a bigger deposit more rewarding.
- Investor Lending: Some banks have increased minimum deposit requirements for investment properties, nudging required LTVs down to 70–80% in certain postcodes.
How LTV Affects Your Loan: Rates, Approval, and LMI
Understanding your LTV isn’t just academic—it shapes your real-world costs and choices. Here’s how:
- Interest Rates: Borrowers with LTVs below 80% often score the sharpest rates. Lenders reserve their lowest advertised rates for ‘low risk’ borrowers, which typically means a 20% deposit or more.
- LMI: Go above 80% LTV and most lenders require Lenders Mortgage Insurance. LMI protects the lender, not you, and can cost thousands upfront or be added to your loan. For example, a $600,000 loan at 90% LTV could attract over $15,000 in LMI in 2025.
- Approval Odds: High-LTV applications face tougher scrutiny. Lenders may ask for extra documents, stress-test your finances more strictly, or cap the maximum loan size. Postcodes with recent price drops can trigger even stricter policies.
Some non-bank lenders are more flexible on LTV, but often at a price. Always compare the total cost, not just the headline rate.
Tips for Improving Your LTV and Getting the Best Deal
If your LTV is above 80%, don’t panic—there are ways to improve your position:
- Save a Bigger Deposit: Every extra dollar saved chips away at your LTV and could save thousands in LMI and interest over the life of your loan.
- Consider a Guarantor: Some lenders accept a family guarantor to help you reach an effective 80% LTV, bypassing LMI altogether.
- Shop Around: Lender policies differ. Some non-banks or smaller lenders may accept higher LTVs for strong applicants, but always weigh the costs.
- Revalue Your Property: If your home has increased in value, refinancing at a lower LTV could unlock better rates or remove LMI on your next loan.
The Bottom Line: Make LTV Work for You in 2025
Loan-to-Value Ratio is more than a number—it’s a lever that affects your borrowing power, loan costs, and financial flexibility. In 2025’s market, understanding your LTV and how to improve it can help you secure sharper rates, avoid unnecessary insurance, and navigate Australia’s evolving lending landscape with confidence.
