You reference the Great Recession specifically, which was the 2007-2009 recession.
The bear market of 2007-2009 lasted 1.3 years and sent the S&P 500 down by 50.9%.
- investopedia, A History of Bear Markets
The article also references the 1929 Stock Market Crash, which “sliced 83.4% off the value of the S&P 500”.
There isn’t a ‘safe’ LVR. Even if you maintain enough LVR to withstand the Great Recession’s 50.9% drop, or for that matter, the 83.4% drop in 1929, it is possible for the lender to unilaterally reduce their LVR tolerance even further.
Since markets can only report historical values, future values are always something of a guesstimate. Imagine yourself in the lender’s shoes when the S&P has dropped 50%. Will you be happy to keep the LVR at 50%, or would you rather drop it to say 40% ‘just to be safe’?
If your client borrowed $50 to buy a stock at $100 but that is now at $50 and dropping like a stone, you can sell the stock immediately to recover your $50 (no loss to the lender). But if your client doesn’t want to sell at $50, maybe it would only be worth $40 tomorrow, so there’s maybe $10 of the lender’s funds at risk. To protect your own position, you’d be inclined to require your client to either cough up $10 or liquidate the position immediately.
Maybe the market isn’t going to drop any further, but that’s just an unbankable opinion to the lender looking at a screenful of red indicators.
If you (now as borrower) had borrowed to capacity at a 50% LVR, you’d be in trouble when it dropped to 40%. That’s the case regardless of what materially-useful LVR you pick - it’s when the markets drop significantly that the lender is likely to pull the rug out from under you, to protect their own interests.
There is no LVR level that is both ‘safe’ and ‘useful’.