Loan-to-valuation ratio

1. The components of LVR must be prudently calculated in accordance with the requirements set out in paragraphs 10 and 11 of this Attachment.
2. The amount of the loan includes the outstanding loan amount (including accrued interest and fees) and any undrawn committed amount (as set out in Attachment C to this Prudential Standard), calculated gross of any provisions for defaulted exposures and other credit risk mitigants. If an ADI provides:
   1. multiple loans secured by the same property and they are sequential in ranking order (i.e. there is no intermediate interest from another lender), the loan amounts must be aggregated and treated as a single exposure for the purpose of calculating the LVR; or
   2. a loan that is secured by a second mortgage, the outstanding amount of the loan must be calculated as the sum of all claims on the borrower secured by both the first and second mortgages over the same property for the purpose of calculating the LVR.

When calculating LVR, the loan amount will reduce if the loan amortises.

1. The value of the property must be appraised independently using prudently conservative criteria, consistent with the requirements set out in APS 220.[5] If a market value can be determined, the valuation must not be higher than the market value.[6] For the purpose of calculating the property value:
   1. the value of the property at origination must be maintained, unless:
      1. an updated valuation is obtained as part of a new loan application process in relation to the mortgaged property;
      2. an event occurs that results in a likely permanent reduction in the property’s value; or
      3. modifications are made to the property or contractual tenancy arrangements, that unequivocally increase its value, and an updated valuation is obtained which confirms the increase in value;
   2. where a loan is secured by multiple properties, an ADI must use the aggregate value of the mortgaged properties for the purpose of calculating LVR; however, where a residential property exposure is secured by both residential and commercial properties, an ADI must apply a 40 per cent haircut to the value of any commercial property included in calculating LVR; and
   3. for a reverse mortgage, where a borrower has been guaranteed a minimum share in the future sale proceeds of a mortgaged property, the calculation of the LVR for regulatory purposes must be adjusted by reducing the value of the mortgaged property by the quarantined percentage share.
2. For exposures secured by commercial property that were originated prior to 1 January 2023, an ADI may use the current valuation, rather than the value of the property at origination, for the purpose of paragraph 11(a) of this Attachment.