What is a loan-to-value ratio (LVR)?
If you’re buying a house in New Zealand, you may have heard about LVRs.
LVR stands for loan-to-value ratio, and it measures how much you’re borrowing compared to the value of the house.
The bigger your deposit, the lower the LVR will be
A lower LVR demonstrates you have a stronger financial position, meaning less risk for the bank.
What are LVR restrictions?
Owner-occupiers (people buying their own home)
Up to 25% of new loans can have an LVR above 80% (less than a 20% deposit).
Property investors
Up to 10% of new loans can have an LVR above 70% (less than 30% deposit).
Did you know?
Banks use their own lending criteria to assess how much you can borrow. Even if you meet the LVR requirements, banks can still cap how much they will lend you based on your specific situation.
LVRs only apply to new loans
LVRs don't apply if you already have a mortgage. However, if you apply for a top-up loan, and the combined debt exceeds the high-LVR threshold, the top-up amount counts as high-LVR lending.
- Kāinga Ora loans, including First Home Loans.
- Refinancing a mortgage, where the new loan value doesn’t exceed the original loan value.
- Portability – this applies when you shift a loan from one property to another (as long as the total loan value does not increase).
- Bridging finance.
- Property remediation (e.g. fixing a leaky home).
- Construction loans – this applies when you are constructing a new home or you are purchasing a newly built home from the developer within 6 months of completion.
Your questions on LVRs answered
Banks can do some low-deposit/high-LVR lending, so you may still be able buy a house with less than a 20% deposit.
There are extra rules and costs to be aware of though. For example, you may pay higher interest rates and fees, like a low equity premium or margin, until you reach 20% equity in your property.
Most high-LVR lending tends to go to first home buyers.
Like LVRs, debt-to-income (DTI) requirements also apply to new lending for residential homes in New Zealand, for both owner-occupiers and investors.
DTI requirements cap the amount banks can lend to people with a high DTI. For owner occupiers, you would have a high DTI if your total debt, including the new mortgage, is more than 6 times your annual income (before tax).
Banks need to comply with both LVRs and DTIs. Together, they act like a safety net and help to avoid too many people getting into financial difficulty at the same time. This, in turn, helps to keep the housing market stable.
We have LVR restrictions to reduce financial stability risks by making sure homeowners like you have enough equity (or a big enough deposit). This makes it easier to manage when house prices fall or if you can't service your mortgage.
Housing loans make up about half of all bank lending in New Zealand, and for most Kiwi families, a home is their biggest asset. Property is also a major part of many New Zealanders' investment portfolios.
If house prices dropped sharply, heavily indebted households and investors would be hit hardest — and that could affect everyone.
We first introduced LVRs in New Zealand in October 2013.
This was in response to house prices rising rapidly (especially in Auckland) and more people taking out low-deposit loans.
The LVR policy has helped to strengthen bank balance sheets and made households more resilient.