Lender State Custodians changed its mortgage pricing six months ago to reflect the varying risks that different classes of borrowers represent. In a move that has become increasingly common in the mortgage market, it set different rates for different loan-to-valuation ratios.Borrowers who take out State Custodians' variable offset mortgage will pay 4.84 per cent if their LVR is below 80 per cent, 4.94 per cent if their LVR is between 80 and 90 per cent, and 5.14 per cent if their LVR is above 90 per cent.State Custodians' chief executive, Heidi Armstrong, said: "We are rating for risk and we are getting the business we want."According to comparison website Infochoice's data, 21 lenders use this type of LVR tiering. They include ANZ, AMP Bank, Bankwest, Citibank, Homeloans Ltd, IMB, ING Direct, Macquarie Bank and Resi Home Loans.A number of lenders adopted the practice during the financial crisis as a way of both limiting their exposure to high-risk borrowers and of managing their funding costs (lenders that fund through securitisation have an incentive to keep their LVRs below 80 per cent).AMP started LVR tiering in 2008, and ANZ, Bankwest and Macquarie Bank started in 2011.A spokesperson for AMP Bank said: "While we maintain a well diversified funding mix, a significant component of our funding has, and continues to be, sourced from the securitisation market. As higher LVR loans are less attractive to RMBS investors, holding a large proportion of these would make it more difficult to source funding."Over the past couple of years the practice has grown. ING Direct started pricing for LVR in July last year and adjusted the settings in December. Borrowers who take out a Mortgage Simplifier loan pay 5.28 per cent if their LVR is below 80 per cent and 5.41 per cent if their LVR is above 80 per cent.A spokesperson for the bank said: "We introduced this pricing to be more competitive for customers at low LVRs. Lenders are increasingly needing to price differently to attract this business."ING Direct's experience has been that since the introduction of LVR tiering it has seen a "significant shift" in its new business mix.The most common threshold between high and low LVRs is 80 per cent, but it can be as low as 75 per cent and as high as 90 per cent. The interest rate differential is around 60 basis points but can be as low as five or 10 basis points.