What is an LVR?

Check the transcript of the video here:

Hello. I’m Maciej Stanek, Senior Financial Adviser and Director at Véurr. Today I’m explaining the loan to value ratio, or what’s called L V R for short. This term is used to describe the size of a loan as a percentage of the underlying asset that the loan is for.

It is commonly used when talking about loans on properties. The best way to explain this is by way of example.

If a property is worth $500,000 and a lender offers a loan of $400,000, $400,000 divided by $500,000 is 80%. So, the LVR on this scenario is 80%. In my opinion, this is a relatively high LVR, but I’ll explain the risks of a high LVR later.

There are two ways to reduce the LVR. The most common is by making regular repayments on the loan. If a loan gets paid down from $400,000 to say $250,000, and assuming the house value remains the same at $500,000, then $250,000 divided by $500,000 is 50%. So, the LVR in this scenario is 50%.

If a properly actually increases in value from, say, $500,000 to $1 million, and the loan remains the same, $400,000 divided by $1 million is 40%. So, the LVR of this scenario is 40%.

Both these scenarios are good for wealth creation. What if the opposite occurs? What if the property falls in value instead of increasing?

Take the same initial example, but instead of a property going up from $500,000 to $1 million, it instead falls from $500,000 to $400,000.

Now the debt is $400,000, and the underlying asset is $400,000. $400,000 divided by $400,000 gives an LVR of 100%.

And if by any chance the property fell even further in value and the loan remained the same, the LVR would exceed 100%.

This is a wealth destruction scenario, and if the individual in this scenario cannot make loan repayments, then the lender will confiscate and sell the underlying asset to recover as many funds as they can from the money that was lent.

Any unrecovered funds would still be the borrower’s responsibility. This is a scenario where the individual is now left with a loan obligation and no asset for their troubles.

It is a situation that I try and help all of my clients avoid as it is extremely difficult to recover from. Calculate your own LVR and get in touch for expert financial advice.


Level 2, 11 National Cct
Barton ACT 2600
02 6171 1777

Veurr Financial Planning Pty Ltd, ABN 16 635 751 423, is a Corporate Authorised Representative of Lifespan Financial Planning Pty Ltd, ABN 23 065 921 735, AFSL 229892.

Registered Office: Suite 4 Level 24, 1 Market Street Sydney NSW 2000

We are committed to ensuring the privacy and security of your personal information. As an Authorised Representative of Lifespan Financial Planning Pty Ltd, we are bound by Lifespan’s Privacy Policy.  (here is the link; Privacy Policy (lifespanfp.com.au)

© 2023 Veurr Financial Planning Pty Ltd. All rights reserved. Designed by Even Dots Creative.

The purpose of this website is to provide general information only and the contents of this website do not purport to provide personal financial advice. We strongly recommend that investors consult a financial adviser prior to making any investment decision. The contents of this website do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this website is given in good faith and is believed to be accurate at the time of compilation. You should obtain a copy of the PDS and Target Market Determination relating to the product and consider it before making any decision to acquire the product.’