What is a loan to value ratio?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A loan to value ratio, or LVR, compares the amount of a loan with the market value of the property or asset it was used to buy. Lenders use it to judge whether they could recover what they lent if the borrower stopped paying. The ratio falls as the loan is repaid and rises if the asset loses value.
The LVR is a calculation, not an account balance. The loan balance comes from the loan account, checked against the lender's statement, and the asset value should be the valuation relevant to the lender's calculation. The asset's carrying amount in the books may reflect depreciation, impairment or revaluation and is not automatically its current market value. Your accountant can explain the carrying amount shown in the accounts.
The lower the ratio, the more of the asset's value sits above the amount owed. That margin is what a lender is looking at when it asks whether selling the asset would cover the loan.
In Australia
business.gov.au's glossary describes the LVR as the ratio between a loan and the market value of the property or asset bought with it, and says lenders use it to gauge their chance of getting the loan back if the borrower defaults.
The same glossary links the ratio to margin calls: on higher-risk loans such as margin loans, when the value of the property or asset falls far enough that the ratio no longer meets the agreed level, the lender asks for more money to bring it back.
Worked example
| Point in time | Loan balance (AUD) | Market value of the asset (AUD) | LVR as a decimal |
|---|---|---|---|
| When the loan is taken out | 240,000.00 | 400,000.00 | 0.60 |
| After several years of repayments | 200,000.00 | 400,000.00 | 0.50 |
| If the asset's value then falls | 200,000.00 | 320,000.00 | 0.625 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Working out the LVR from what the asset cost, as recorded in the books, instead of its current market value.
- Using the amount originally borrowed rather than the balance still owing.
- Assuming the LVR stays the same for the life of the loan.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.