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What does LVR stand for?

February 7, 2023

 

When it comes to home loans, the term “LVR” is one that you’ll hear a lot. But what does it actually mean?

 

 

LVR stands for Loan to Value Ratio. It’s a measure of the amount of money you’re borrowing compared to the value of the property you’re buying. It’s expressed as a percentage, and it’s used by lenders to assess the risk of a loan.

 

 

The higher the LVR, the higher the risk for the lender. That’s because if you default on the loan, the lender will have to recover the money from the sale of the property. If the LVR is too high, the lender may not be able to recover the full amount of the loan.

 

 

To reduce the risk for the lender, most lenders will require a minimum deposit of at least 20% of the purchase price. This is known as the “equity” in the property. The equity is the difference between the purchase price and the amount of money you’re borrowing.

 

 

For example, if you’re buying a property for $400,000 and you’re borrowing $320,000, the equity in the property is $80,000 (20% of the purchase price). The LVR in this case would be 80%.

 

 

The higher the equity in the property, the lower the LVR. This means that the lender is taking on less risk and is more likely to approve the loan.

 

 

It’s important to remember that the LVR is just one factor that lenders consider when assessing a loan application. Other factors include your credit history, income, and ability to make repayments.

 

 

If you’re considering taking out a home loan, it’s important to understand the concept of LVR and how it affects your loan application. The higher the equity in the property, the lower the LVR and the better deal you are likely to be approved for. When a mortgage scenario is lower risk and there will be more lenders willing to offer you a loan. More lenders = greater supply = lower price. We're oversimplifying a bit but you get the picture.


At Logan Home Loans, we are dedicated to helping you achieve your dream of homeownership. Our friendly and experienced team of mortgage brokers is here to guide you through the entire home loan process, from start to finish. Whether you're a first-time buyer or an experienced property investor, we can provide personalized support and guidance to help you secure the best home loan rates and terms.


We understand that the home loan process can be overwhelming, which is why we are committed to making it as smooth and stress-free as possible for you. Our team will work with you to understand your unique circumstances and help you find the best home loan solution to suit your needs.


If you are considering purchasing a home, refinancing your current loan, or simply want to learn more about the home loan process, please don't hesitate to reach out to us. We would love to help you achieve your homeownership goals and provide you with the support and guidance you need to make your dreams a reality. Contact us today to get started!


 

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Banks “stand ready to help” people with home loan problems

January 3, 2024
The Australian Banking Association (ABA) has launched a campaign encouraging borrowers struggling with loan repayments to seek help, in a valuable reminder there are options available if you're finding it hard to keep up with your mortgage. Your bank may be able to: Reduce your home loan repayments. Pause your repayments temporarily. Switch your repayments from principal and interest to interest-only temporarily. Increase the length of your loan (thereby reducing the repayments). ABA CEO Anna Bligh said banks understood many borrowers were facing challenging circumstances. “Banks stood by their customers during the COVID-19 pandemic, deferring payments for people who for the first time in their lives found themselves unable to pay. Banks stand ready to help people again now,” she said. “People who are finding their finances are stretched should not feel they have no options and they have to do it on their own. Banks have dedicated, highly experienced teams ready to help.” As your broker, I'm also here to help. You're welcome to contact me for advice; I can then speak to and negotiate with your lender on your behalf. The key thing is to move fast, because the further you get ahead of the problem, the more flexible and helpful banks tend to be.

Is 2024 the year to buy property?

January 2, 2024
The Reserve Bank of Australia has rounded out 2023 with the decision to hold the nation’s cash rate at 4.35%. 2023 hasn’t been an easy year for homeowners or ambitious first-home buyers. The cash rate increased from 3.10% to 4.35% over the course of eleven months in the RBA’s bid to bring inflation back within its target range. According to data from the RBA, the average home loan rate at the start of the year (for existing home loans) was 5.46% p.a.. If the lender passed on interest rates in line with the increased cash rate, that would make the interest rate 6.71% p.a.. Based on the average Australian mortgage of $599,000 on a 25-year term paying principal and interest, that equals an additional $459 per month simply to service the mortgage (from $3,661 to $4,123 per month). For first-home buyers, the average time to save for a deposit has increased to 14 years, according to a recent paper by the Australian Housing and Urban Research Institute Limited, with the national ratio of median house price to median income now sitting at 8.5. That is the hard reality many Australians are currently facing. So the question is, what will 2024 bring? Short of looking into an Australian-economy crystal ball, we can’t predict exactly what will happen with inflation, the cash rate and therefore interest rates. However, there are a couple of factors to consider. The RBA will meet only eight times in 2024 to determine whether to move the cash rate, down from the eleven in 2023. This means potentially less movements through the year. The next cash rate announcement will be 6 February. Economists from the Big Four predict the cash rate is at, or near, its peak. Some predict at least one more rate hike in 2024 and rate cuts likely not happening until at least December. Despite predictions of a decline in house prices in 2023, they have actually continued to increase in most areas around the country. This could be good news for refinancers as we enter 2024, as they could find their equity has grown. Why 2024 could be a good time for first-home buyers Despite some potential challenges, 2024 could actually be a good time to get into the housing market. Here’s why. Savings interest rates are up - the pro of the cash rate going up is that savings interest rates also tend to go up. This can help expedite saving for a deposit. It could be cheaper to be a homeowner - according to PropTrack data, it is now cheaper to buy an apartment rather than renting one in most capital cities (based over a ten-year period with a 20% deposit). In fact, a third of properties nationally are cheaper to buy than rent. The First Home Guarantee has expanded - in 2023 the eligibility criteria for the First Home Guarantee, Family Home Guarantee and Regional First Home Buyer Guarantee was expanded, enabling eligible buyers to get into the market sooner. This means if you have a 5% deposit (or 2% if you are a single parent or guardian), you may be able to use one of the schemes to purchase property without paying lenders mortgage insurance. ‘Help to buy’ scheme to be introduced - the federal government has announced plans to rollout a new scheme that will help up to 40,000 eligible buyers with as little as a 2% deposit get into the housing market with lower repayments. If 2024 is the year you want to purchase your first home, it is a good idea to speak with your broker to find out how much you may be able to borrow and set a plan in place to achieve your goal.
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