According to the latest RBA Housing Market Update 2025, Australian property prices have increased by 7.2% in the past year, making LVR understanding more critical than ever for first-home buyers.
LVR (loan-to-value ratio) is the percentage of your property's value that you're borrowing. While keeping it under 80% helps you avoid LMI (lenders mortgage insurance) and access better interest rates, higher LVR loans can be a smart way to get into the property market sooner. It's all about understanding the trade-offs.
What exactly is LVR?
Let's cut through the jargon. LVR (loan-to-value ratio) is simply the percentage of a property's value that you're borrowing from the bank.
The formula is straightforward: (Loan Amount ÷ Property Value) × 100 = LVR
For example, if you're buying a $600,000 apartment and borrowing $450,000: ($450,000 ÷ $600,000) × 100 = 75% LVR
That means you're borrowing 75% of the property's value and covering the remaining 25% with your deposit.
Why your LVR matters
Banks are all about risk management. The higher your LVR, the riskier you appear to lenders. Here's why your LVR is crucial:
1. The magic 80% threshold
Most lenders consider loans with an LVR above 80% to be higher risk. Cross this threshold, and two things happen:
- You'll likely pay a higher interest rate
- You'll get hit with Lenders Mortgage Insurance (LMI) - though this is likely to change for all new first homebuyers with a 5% deposit from January 2026.
Homeowners considering a refinance - either a case-out refinance Renovators and cash-out
2. What's LMI and why should you consider it?
Despite its name, Lender's Mortgage Insurance doesn't protect you—it protects the lender if you can't repay your loan. This insurance can add thousands to your loan costs.
But here's the thing: LMI isn't necessarily a bad deal. You can consider it—or a low deposit premium—essentially the price of admission to homeownership when you don't have a massive deposit saved up. Think of it as the cost of getting into the market years earlier than you might otherwise.
Common LVR scenarios
Let's break down what different property values look like with various LVRs:
How banks assess property value
Here's something many first-time buyers miss: banks don't always value properties the same way you do.
There are two types of valuations:
- Market valuation: What the property would likely sell for (determined by real estate agents)
- Bank valuation: What the bank thinks the property is worth (often more conservative)
Spoiler alert: Banks typically use the lower of these two figures when calculating your LVR. This is where many first home buyers benefit from the help of a broker to negotiate with a lender.
5 smart ways to lower your LVR
1. Save more, borrow Less
The most obvious but effective strategy. Every extra dollar in your deposit means one less dollar to borrow.
2. Look for a more affordable property
Consider properties with lower purchase prices. This automatically reduces the amount you need to borrow relative to your deposit.
3. Negotiate with lenders
Some lenders might reassess your property if market conditions have improved. Don't be afraid to ask your broker to help renegotiate your home valuation.
4. Make property improvements and refinance
Already own? Make strategic improvements to your property, get it revalued, and potentially refinance to a lower LVR.
5. Make property improvements and refinance
Pay down your loan faster than your contract term by putting money into your offset or making additional early repayments.
Already a homeowner? Here's how your LVR can change over time
Good news: Your LVR naturally decreases as you:
- Make regular mortgage repayments
- See property value increases in your area
Initially, most of your repayments go toward interest, but over time, more goes toward reducing your principal—gradually improving your LVR.
According to the Australian Bureau of Statistics, median property values in Sydney increased by 9.3% in 2024, which means homeowners who purchased with a 90% LVR just a year ago may now have an LVR closer to 83% simply due to market growth. Our 2025 Property Market Forecast has more details on expected trends that could affect your LVR.
The bottom line: High vs low LVR - what's right for you?
Your LVR is one of the most important numbers in your home buying journey, but there's no one-size-fits-all "correct" LVR.
Benefits of a lower LVR:
- No LMI costs
- Better interest rates
- Lower overall repayments
- More equity cushion from the start
Benefits of a higher LVR:
- Get into the property market years earlier
- Start building equity instead of paying rent
- Potential to benefit from property value growth while you would otherwise still be saving
- Less money tied up in your property, allowing for investment diversification
Many first-time buyers strategically choose a higher LVR loan, understanding that the cost of LMI may be significantly outweighed by property appreciation and the wealth-building advantages of homeownership. In hot markets, the property value might increase by more than the cost of LMI in just months.
What matters most is understanding exactly what your LVR means for your specific situation and making an informed choice.
Frequently asked questions about LVR
Can I get a home loan with more than 95% LVR?
While most mainstream lenders cap their LVRs at 95%, some specialised lenders such as OwnHome offer 96% to 100% LVR loans. These typically come with strict eligibility requirements.
Does LVR affect my interest rate?
Yes. In a low-rate environment, interest rates are often more different between LVRs than in a high-rate environment as we've experienced in 2023-2025. As interest rates are predicted to come down over 2026, you may see greater rewards for lower LVR loans.
How quickly can I reduce my LVR to refinance without LMI?
This depends on your repayment strategy and market conditions. In growing markets like Sydney's eastern suburbs, some of our clients have refinanced within a year of purchasing as their property value increased.
Do all lenders calculate LVR the same way?
No. While the basic formula is standard, different lenders may have different valuation methods. Some are more conservative than others, which is why working with a broker who knows which lenders might value your property type more favorably can save you thousands.
How does LVR affect investment property loans?
Investment loans typically have stricter LVR requirements, with many lenders capping them at 80-90%. Our Investment Property Lending Guide covers this in detail.
