LVR, Loan-to-Value Ratio, is the loan amount divided by the value of the security property, expressed as a percentage. A $700,000 first mortgage, the only debt secured on the property, against a $1 million valuation is a 70% LVR.
Lenders cap LVRs by product and security type.
Why it matters: LVR is the simplest measure of how much room a lender has if a deal goes wrong. At 60% LVR, where the loan is the only debt secured on the property, the property would need to fall 40% in value before the lender's principal is at risk; at 80% LVR, only a 20% fall does the same damage. Lower LVR = safer position for the lender, usually = sharper pricing for the borrower.
LVR is calculated gross of all amounts extended, including prepaid interest, capitalised interest, and fees. A loan that "looks" 65% LVR can sit at 70% once those are added in.