LVR: The Number That Determines Everything
If there's one number that matters more than any other in a second mortgage application, it's your Loan-to-Value Ratio (LVR). This single metric determines whether you qualify, how much you can borrow, and in some cases, the rate you'll pay.
What Is LVR?
LVR is the total debt secured against a property expressed as a percentage of the property's market value. For a second mortgage, this includes both your first mortgage AND the proposed second mortgage.
The formula:
Combined LVR = (First Mortgage + Second Mortgage + Any Other Secured Debts) ÷ Property Value × 100
LVR Limits by Property Type
Different property types have different maximum LVR limits, reflecting the varying levels of risk:
- Residential property (metro): Up to 70% combined LVR
- Commercial property: Up to 50% combined LVR
- Industrial property: Up to 60% combined LVR
- Vacant land (under 10,000 sqm): Up to 70% combined LVR
These limits exist to protect both the borrower and the lender. Property values can fluctuate, and maintaining a buffer ensures that even if values drop, the loan remains adequately secured.
A Worked Example
Let's say you own a residential property in Sydney worth $1,200,000 with an existing mortgage of $500,000.
- Maximum combined LVR: 70%
- 70% of $1,200,000 = $840,000
- Less existing mortgage: $840,000 – $500,000 = $340,000
- Maximum second mortgage: $340,000
If you also have additional debts secured against the property (such as a line of credit under an all-moneys clause), these reduce your available equity further.
What About Multiple Properties?
If you own multiple properties, you may be able to use more than one as security for your second mortgage. Each property is assessed individually for its LVR, and the combined equity across all properties determines your total borrowing capacity.
This can be particularly useful when a single property doesn't have enough equity on its own, but across your portfolio, there's ample security.
How Property Valuations Work
The property value used in LVR calculations is typically based on a current market valuation, not your purchase price or council rates. In most cases, a desktop or kerbside valuation is sufficient for second mortgage purposes, which is faster than a full valuation.
If you believe your property has increased in value since your last valuation, this works in your favour — a higher valuation means a lower LVR and potentially more borrowing capacity.
Tips to Maximise Your Borrowing Capacity
- Pay down your first mortgage — even a small reduction increases your available equity
- Get an updated valuation — property values in many Australian markets have risen significantly
- Consider multiple securities — using more than one property can unlock additional borrowing capacity
- Check for all-moneys clauses — debts secured under these clauses reduce your available equity
The Bottom Line
LVR is straightforward: the more equity you have relative to your property value, the more you can borrow. If your combined LVR is under 70% (for residential), you're likely in a strong position to secure a second mortgage quickly.
