Skip to content
GLOSSARYTERMS AS A CREDIT DESK USES THEM

Loan to value ratio (LVR)

What is a loan to value ratio?

ONE OF 80 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

The loan to value ratio is the loan divided by the value of the security behind it — the share of the asset's value the bank has lent against. Banks set maximum ratios by type of asset, lower for assets that are harder to sell or lose value faster, because the gap between the loan and the value is what absorbs a fall in price and the costs of a forced sale. A ratio is only as good as the valuation under it, which is why a desk asks which value — market, forced-sale or the borrower's own — it was struck on.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Not loan to cost: a development lender measures the loan against the cost of the project as well, because the finished value is still a forecast.

// WORKED IN

// NEXT TO IT

All 80 terms on one page