Key Takeaways
- •LVR = (Total Debt / Property Value) x 100
- •Below 65% gives maximum flexibility across all products
- •Postcode category affects maximum LVR (Cat 1 metro = 75%, Cat 3 regional = 70%)
- •Use our free LVR calculator at /tools/lvr-calculator
Loan-to-value ratio — LVR — is the most important metric in property-secured lending. It determines how much you can borrow, which products are available to you, and what your loan will cost. Every lender uses it, but not every lender calculates it the same way.
This guide explains how LVR works for commercial property loans in Australia, what factors affect it, and what you can do to improve your position.
The LVR Formula
LVR is calculated as: Loan Amount divided by Property Value, multiplied by 100. If you are borrowing $750,000 against a property valued at $1,000,000, your LVR is 75%. The lower the LVR, the less risk for the lender — and typically, the better the terms you will receive.
For second mortgages, the calculation is slightly different. The combined LVR includes all debt against the property: the existing first mortgage plus the new second mortgage, divided by the property value. At Alphacon Capital, our Reach product allows combined LVRs up to 70% on second mortgage facilities.
How Lenders Calculate Property Value
The property value in the LVR formula is not the purchase price or the borrower's estimate — it is the lender's assessed value, usually determined by an independent valuation.
Most private lenders use a panel of approved valuers. At Alphacon Capital, we accept Valex desktop valuations from $250 for straightforward residential securities, and full valuations for commercial, land, and complex properties. The valuation establishes the current market value, which becomes the denominator in the LVR calculation.
Some lenders also apply internal adjustments — sometimes called haircuts — based on property type, location, or market conditions. A property in a remote postcode might be assessed at a lower value than its valuation figure for LVR purposes.
What Affects Your LVR
Property type
Residential property generally attracts the highest maximum LVR, followed by commercial property, and then land. This reflects the relative liquidity of each asset class — residential property is easier to sell quickly than vacant land.
Postcode category
Lenders categorise postcodes based on population density, market depth, and historical sales data. Metro postcodes (Category A) attract the best LVR and pricing. Regional postcodes (Category B and C) may attract lower maximum LVRs and higher fees. Use our postcode checker to see how your property's location is categorised.
Existing debt
If there is already a mortgage on the property, this reduces your available equity. For second mortgages, the combined debt (first mortgage plus new loan) is used in the LVR calculation. A property worth $1M with a $500k first mortgage has $500k of equity — but a 70% combined LVR cap means you can only borrow up to $200k in a second mortgage position.
Loan purpose and structure
Some lenders cap LVR based on loan purpose. Construction loans, for example, may attract a lower LVR than a straightforward purchase or refinance. The structure of the deal — single security vs multiple securities, first mortgage vs second mortgage — also affects the maximum LVR available.
LVR Tiers and What They Mean
Most private lenders use LVR tiers to determine pricing. At Alphacon Capital, the key threshold is 60%. Loans at or below 60% LVR attract lower risk fees. Loans above 60% (up to the maximum of 70-75% depending on product) attract slightly higher risk fees. The difference is typically 0.10% of the loan amount — meaningful on larger facilities.
Understanding these tiers matters because a small reduction in loan amount can sometimes move you into a lower pricing tier, reducing your total cost.
Strategies to Improve Your LVR
There are several ways to improve your LVR position:
Reduce the loan amount
The most direct approach. If you can contribute more equity or reduce the amount you need to borrow, your LVR improves proportionally.
Offer additional security
Adding a second property as security increases the total property value in the LVR calculation. If you are at 80% LVR on a single property, adding a second property can bring the combined LVR below 75%.
Pay down existing debt
For second mortgage applications, reducing the balance on your first mortgage directly improves your combined LVR.
Choose the right product
Different products have different maximum LVRs. At Alphacon Capital, Resolve, Boost, and Flexi offer up to 75% LVR, while Reach offers up to 70%. If your LVR is borderline, the product you choose matters.
Check Your LVR Now
Use our free LVR calculator to instantly see where your deal sits. Enter the property value, existing debt, and proposed loan amount, and the calculator will show your LVR, which products are available, and what pricing tier you fall into. No sign-up required.