When navigating the world of finance, understanding key metrics like the Loan-to-Value Ratio (LVR) is crucial for both borrowers and lenders. LVR is a financial term used to determine the ratio (percentage) of loan amount relative to the value of the property offered as security.

Whether you’re dealing with residential properties or vacant land, knowing how these variables affect LVR can significantly impact loan decisions and risk management.

This article delves into the nuances of LVR, exploring how different property types, locations, and loan structures determine this key financial metric and what it means for your financial strategy.

LVR is not a fixed metric and is influenced by several factors including Security Type, Security Location and Loan Type.

1. Security Type

All Vado Private loans are secured by property. The security profile can include residential, commercial, industrial, retail and vacant land.

Generally, the LVR attributable to residential dwellings is higher than other property types. Depending on the improvements and marketability, an acceptable LVR can be up to 80%.

The LVR threshold decreases with commercial, industrial, retail properties. The LVR range is typically between 50-70% and will vary based on improvements and tenancy profile (if leased).

Vacant land is acceptable security, but the LVR is typically lower. The LVR range is typically between 50-65% and will vary based on land size, zoning, planning approval, access to services, environmental issues and easements.

2. Security Location

Metropolitan areas are deeper markets with higher populations and offer greater liquidity. Because of this, the LVR extended in metropolitan locations is higher than non-metropolitan areas.

Certain regional locations have strengthened post COVID. Accordingly, the LVR’s in these locations are higher than what they have been historically.

3. Loan Type

This is broadly categorised as non-construction loans and construction loans.

For non-construction loans, the valuation and LVR is based on the ‘as is’ value of the property.

For construction loans, the valuation and LVR are based on both the ‘as is’ value and ‘as if complete’ value of the property. The latter references the value of the project once Practical Completion has been achieved and an OC is issued. The ascribed LVR will be based on both the ‘as is’ and ‘as if compete’ values. The LVR will be governed by stage of construction, time to complete, any presales (or leasing precommitments), take out finance options and any risk mitigating factor.

4. Exit Strategy

All loans should have a palatable exit strategy.

Higher LVR’s may be considered in circumstances where the security property has been sold and will settle during the loan term.