What Is LVR in Private Lending? Loan-to-Value Ratio Explained for Australian Borrowers
LVR stands for loan-to-value ratio. In private lending, it is one of the most important measures a lender uses to assess how much it may be prepared to lend against a property.
The LVR compares the total loan amount secured against a property with the lender’s accepted value of that property. It is expressed as a percentage.
For Australian business owners, investors, developers and property professionals seeking private finance, LVR can influence loan approval, pricing, available loan amount, security requirements and the strength of the overall transaction.
At Assurity Capital, private first mortgage and second mortgage loans are available for genuine business and investment purposes only. Finance is subject to assessment, suitable security, eligibility, lender criteria, fees, approval and a realistic exit strategy.
What does LVR mean in private lending?
LVR means loan-to-value ratio.
The basic calculation is:
LVR = Total loan amount ÷ property value × 100
For example:
Property value: $1,000,000
Proposed private loan: $650,000
LVR: 65%
In this example, the private lender is lending an amount equal to 65% of the property’s assessed value.
The remaining 35% represents the equity buffer between the loan amount and the property value. That buffer is important because it helps protect the lender and borrower against changes in property value, sale costs, delays and other transaction risks.
Why is LVR important to private lenders?
Private lenders commonly provide property-backed finance. This means the property security is central to the loan assessment.
A lower LVR generally gives a lender a larger equity buffer. This can make a transaction stronger because there is more room between the total debt and the property’s value.
LVR can affect:
Whether a lender will consider the loan.
How much may be available to borrow.
Whether the loan is structured as a first mortgage or second mortgage.
The interest rate and fees.
Whether a valuation is required.
The lender’s confidence in the proposed exit strategy.
The speed and complexity of the assessment.
LVR is important, but it is not the only factor. A lender will also consider the property type, location, marketability, loan purpose, existing debt, borrower circumstances and exit strategy.
How do I calculate LVR?
To calculate LVR, divide the total amount being borrowed by the property value, then multiply by 100.
Example: First mortgage LVR
Property value: $2,000,000
Proposed first mortgage: $1,200,000
$1,200,000 ÷ $2,000,000 × 100 = 60%
The LVR is 60%.
Example: Second mortgage combined LVR
A second mortgage cannot be assessed in isolation. The lender needs to consider all debt secured against the property.
Property value: $1,500,000
Existing first mortgage: $700,000
Proposed second mortgage: $250,000
Total secured debt: $950,000
$950,000 ÷ $1,500,000 × 100 = 63.3%
The combined LVR is 63.3%.
The proposed second mortgage itself is $250,000, but the lender assesses the total $950,000 secured against the property.
What is combined LVR?
Combined LVR is the total of all loans secured against a property compared with the property’s value.
It is particularly important for second mortgage loans.
For example, if a property is worth $1,800,000 and already has a first mortgage of $900,000, a borrower cannot simply assume the remaining $900,000 is available to borrow.
The lender will assess the total debt after the proposed second mortgage, the security ranking, the property type, the purpose of funds and the exit strategy.
If the lender’s acceptable combined LVR for that scenario is 70%, the maximum total debt may be:
Property value: $1,800,000
Maximum combined LVR: 70%
Maximum total secured debt: $1,260,000
Less existing first mortgage: $900,000
Potential second mortgage amount before costs and lender criteria: $360,000
This is an illustration only. Actual loan amounts depend on the full scenario, accepted value, costs, security ranking and lender criteria.
Is equity the same as LVR?
No. Equity and LVR are connected, but they are different.
Equity is the difference between the property value and the debt secured against it.
LVR is the percentage of the property value that is borrowed.
For example:
Property value: $1,000,000
Total debt: $600,000
Equity: $400,000
LVR: 60%
A property may have substantial equity, but not all of it will necessarily be available for a new loan. The amount available depends on the lender’s maximum acceptable LVR and the individual transaction.
What LVR do private lenders accept?
There is no single maximum LVR for private lending in Australia.
The acceptable LVR can vary depending on:
Whether the loan is a first mortgage or second mortgage.
The property type and location.
The quality and marketability of the security.
Whether the property is metropolitan, regional, specialised or rural.
The loan purpose.
The term of the loan.
The strength of the exit strategy.
The borrower’s overall circumstances.
Whether interest and fees are paid monthly or capitalised.
As a general principle, first mortgage loans may allow higher LVRs than second mortgages because the lender holds first-ranking security. Second mortgage lending is usually assessed more conservatively because the first mortgage lender must be repaid before the second mortgage lender.
No LVR should be assumed until the property, existing debt and full transaction have been assessed.
Why do second mortgages have lower LVRs?
A second mortgage lender sits behind the first mortgage lender in priority.
If the property is sold or enforcement action occurs, the first mortgage is paid out before the second mortgage. This creates greater risk for the second mortgage lender.
For that reason, second mortgage assessments place strong emphasis on:
The existing first mortgage balance.
Combined LVR.
Property value and marketability.
Whether the first lender requires consent or a priority arrangement.
The purpose of the second mortgage.
The exit strategy.
The timeframe for repayment.
A lower combined LVR can improve the strength of a second mortgage scenario because it provides a larger equity buffer behind the total secured debt.
Does a low LVR guarantee private loan approval?
No.
A low LVR can make a private lending scenario more attractive, but approval is never guaranteed.
A lender must still consider:
Whether the loan purpose is eligible.
Whether the property is suitable security.
Whether title, ownership or legal issues exist.
Whether existing mortgages or caveats affect the structure.
Whether the exit strategy is credible.
Whether the timeframe is realistic.
Whether the loan is for a genuine business or investment purpose.
Private lending should not be treated as automatic approval against property equity. A lender needs to understand the complete transaction and the plan for repayment.
How can I improve my LVR for a private loan?
A borrower may be able to strengthen an LVR position by:
Reducing the requested loan amount.
Providing additional acceptable property security.
Paying down existing debt before settlement.
Using a larger contribution or cash injection.
Selecting a lower-risk loan structure.
Providing a current valuation or strong supporting property evidence.
Clearly demonstrating a credible exit strategy.
For second mortgage borrowers, accurate information about the existing first mortgage balance is essential. An outdated balance or incorrect payout figure can affect the combined LVR calculation.
Does a property valuation affect LVR?
Yes.
LVR is calculated using the lender’s accepted property value, which may be based on a formal valuation, recent sale evidence, desktop assessment or another form of property review.
A borrower’s estimated property value and a lender’s accepted value may not be the same.
For example:
Borrower’s estimated value: $2,000,000
Lender’s accepted value: $1,800,000
Proposed loan: $1,200,000
Using the borrower’s estimate, the LVR appears to be 60%.
Using the lender’s accepted value, the LVR is:
$1,200,000 ÷ $1,800,000 × 100 = 66.7%
Because LVR is based on the accepted value, a conservative valuation can materially affect the available loan amount.
How does LVR affect private loan pricing and terms?
In general, lower-LVR transactions may present less risk to a lender and can potentially result in more lender options or more favourable terms.
Higher-LVR scenarios can involve more risk because there is a smaller equity buffer. This may affect:
Interest rate.
Establishment fees.
Maximum loan term.
Need for additional security.
Required information or due diligence.
Whether interest may be capitalised.
Availability of the requested loan structure.
Pricing and terms are determined on a case-by-case basis. Borrowers should compare the total cost of the loan, not just the advertised interest rate.
LVR and exit strategy: why both matter
A strong LVR alone is not enough. Private lenders also need to see how the loan will be repaid.
A borrower seeking a short-term private loan may propose an exit through:
Refinancing into a bank or non-bank facility.
Sale of the security property.
Sale of another property or business asset.
Completion and sale of a development or investment.
A documented business sale, capital event or verified incoming funds.
A lower LVR may provide more flexibility if the exit takes longer than expected, but it does not remove the need for a realistic repayment plan.
Private loans and LVR with Assurity Capital
Assurity Capital assists business owners, investors and property professionals across Sydney, NSW and Australia with private property-backed lending.
We consider private first mortgages, second mortgages, bridging finance and secured business loans where there is suitable property security, a clear business or investment purpose and a realistic exit strategy.
LVR is assessed as part of the full transaction, alongside property type, existing debt, loan purpose, timing and repayment plan.
Finance is subject to assessment, security, eligibility, lender criteria, fees and approval.
Frequently Asked Questions
What does LVR mean in private lending?
LVR means loan-to-value ratio. It is the percentage of a property’s value represented by the total debt secured against that property.
How do I calculate LVR for a private loan?
Divide the total loan amount by the property’s accepted value and multiply by 100. For second mortgages, use the combined total of the existing first mortgage and proposed second mortgage.
What is a good LVR for a private loan?
There is no single “good” LVR. Lower LVRs generally provide a larger equity buffer, but the suitable LVR depends on property type, location, security ranking, loan purpose and exit strategy.
What is combined LVR for a second mortgage?
Combined LVR is the total of all debt secured against the property, including the existing first mortgage and proposed second mortgage, divided by the property value.
Can I borrow all of my property equity?
Not necessarily. The amount available depends on the lender’s maximum acceptable LVR, the property’s accepted value, existing debt, loan purpose, security type and lender criteria.
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