Assets & Equity

How Lenders Assess Assets and Equity

The assets and equity pillar examines the capital contribution to the transaction. Lenders assess not just how much deposit a borrower has, but where it came from, how long it has been accumulated, and whether the resulting LVR position is within policy.

LVR — Loan to Value Ratio

The Loan to Value Ratio is the loan amount divided by the lender's assessed value of the property, expressed as a percentage. A $700,000 loan on a property valued at $1,000,000 is an 80% LVR.

The 80% threshold is significant. Above 80% LVR, most lenders require Lenders Mortgage Insurance (LMI). The lender's assessed value — based on an independent valuation, not the contract price — is the figure used in the calculation. If the valuation comes in below the contract price, the LVR is calculated on the lower number.

Lenders Mortgage Insurance (LMI)

LMI is a one-off insurance premium paid by the borrower that protects the lender — not the borrower — against loss in the event of default and forced sale. It is typically capitalised into the loan rather than paid upfront.

LMI premiums vary depending on the LVR and loan amount. For a property purchase at 90% LVR, the cost can range broadly depending on the loan size and the LMI provider (Helia or Genworth are the two primary providers in Australia). At higher LVRs the cost escalates. LMI does not provide any benefit to the borrower — it is purely a lender protection mechanism.

Some professional categories (medical practitioners, certain legal and accounting professionals at specific lenders) may be eligible for LMI waivers at certain LVR levels. This is lender-specific and dependent on the borrower meeting the lender's profession definition.

Genuine savings

Genuine savings are funds that have been accumulated gradually over time through a borrower's own efforts — typically demonstrated by at least 3 months of savings history. The genuine savings requirement exists because lenders want evidence that the borrower is financially disciplined and has the capacity to make regular loan repayments.

What does not automatically qualify as genuine savings (without supplementary evidence):

• Gift funds from a parent or family member
• Tax refunds
• Inheritances received recently
• Windfall proceeds

Lenders treat these differently from accumulated savings. Some lenders require a period of holding (commonly 3 months in a savings account) before gifted funds are treated as equivalent to genuine savings. Requirements vary by lender.

Rental payment history can be used as evidence of savings capacity at some lenders — the argument being that regular rental payments demonstrate repayment discipline.

Usable equity vs theoretical equity

A property owner's equity is the difference between the property's value and the outstanding loan balance. However, "theoretical equity" and "usable equity" are different things.

Most lenders will lend up to 80% LVR against a property (higher with LMI). Usable equity is the amount available up to that 80% threshold, less any existing debt. A property valued at $1,000,000 with an existing loan of $600,000 has $400,000 in theoretical equity — but only $200,000 in usable equity (80% of $1,000,000 minus $600,000).

The lender's valuation — not the owner's opinion of market value — determines the figure used in this calculation. Valuations can come in below expectations in a softening market.

Guarantor structures

A family guarantee (typically from parents) allows a family member to offer equity in their own property as additional security for a borrower's loan. This can help a borrower avoid LMI at a higher LVR, or complete a purchase with a smaller cash deposit.

Guarantor structures involve the guarantor's property being offered as additional collateral. The guarantor bears risk — in the event of default, the lender may have recourse to the guarantor's property. These arrangements require careful consideration and independent legal advice for the guarantor.

Most lenders offer limited guarantee structures where the guarantee is capped at a specific amount rather than applying to the full loan.

Subpages in this pillar

• Deposit size and LVR
• LMI and risk transfer
• Genuine savings vs funds to complete
• Usable equity versus theoretical equity
• Accessing equity for future borrowing
• Guarantor structures and family support

Canonical question cluster

The deposit and equity canonical question cluster covers deposit sources, LMI, genuine savings, and related assessment mechanics.