What is it?  

It’s the amount of the loan divided by the value of the security property, expressed as a percentage.   So, if you were getting a $750,000 loan to purchase a $1,000,000 home, the Loan to Value Ratio, or LVR, would be 75%

Why is it important?

Property values can go up and down.  Furthermore, if a person is struggling to keep up with their loan re-payments, they may also find it difficult to come up with the money to properly maintain a property.   Should they be forced to leave, they might also get upset and damage it.  And, of course, if the property needs to be sold, there will be selling costs.   

Since the bank needs to depend on getting enough money from the sale of the property to repay the loan in a worst case scenario, they want a bit of a cushion.  So, generally they want the loan to be no more than 80% of the value of the property.  An 80% LVR.

How high can the LVR be to get a home loan?

With most banks and lenders, if the LVR is above 80%, you need to get Lender’s Mortgage Insurance (LMI).  That can often go up to 95% with the cost of the LMI in that 95%.  This used to be 98% for some lenders, but that is now very rare.   At the time of writing there is one lender that we are aware of among our panel of lenders that will go to that level, but it’s only for first home buyers.

Sometimes for medical professionals the LVR will be allowed to go well above 80% without being required to get Lenders Mortgage Insurance.  One lender is currently allowing borrowers with very solid incomes and good credit to go up to 85%.  Please be aware that lender policies on matters such as this can change quickly, so check with us as to what the situation is at the time that you are considering an application.