Loan to Value Ratios (LVR) in New Zealand: Everything You Need to Know

Understand LVRs, and how LVR changes impact borrowers, investors, and the housing market

Most people think they know how much deposit they’ll need to buy a property. But the size of the deposit you need changes. It’s all because of the loan-to-value ratio (LVR) restrictions.

Understanding LVR is one of the most important steps you can take to get your property goals on track, whether you’re a first-home buyer or a seasoned property investor.

What is Loan to Value Ratio (LVR)?

At its simplest, LVR is the percentage of a property’s value that is financed by debt. In other words, it’s the size of your mortgage compared to the value of your property. For example, if you buy a $1,000,000 property with a $200,000 deposit and borrow $800,000, your LVR is 80 percent. In other words, the loan value of $800,000 comprises 80 percent of the total property value.

The mathematics is straightforward, though the rules around LVR are anything but.

The Deposit You Need Can Vary

Under the LVR rules, the size of deposit you need changes depending on:

• Whether you buy a new or existing property, and
• If you are buying as a property investor, rather than an owner-occupier.

Why Does LVR Matter?

LVR matters because banks and regulators use it to manage risk. A high LVR means you’re borrowing a larger portion of the property’s value, which makes lenders nervous. From their perspective, if property prices fall, borrowers with high LVRs are at greater risk of slipping into negative equity (owing more than the property is worth). For you, this translates into stricter lending conditions and sometimes higher interest rates.

The Reserve Bank of New Zealand (RBNZ) sets rules on LVRs to ensure the property market doesn’t overheat and that banks, and the banking system, remains stable.

Commercial banks are businesses including ASB, ANZ, BNZ and Westpac. These banks lend out money for mortgages and give customers regular transaction accounts. The RBNZ is the regulator. It sets the rules and regulations for commercial banks. The RBNZ ensures the monetary system stands up and that the other banks don’t take on too much risk.

An LVR restriction is where the Reserve Bank bans the commercial banks, such as ASB, from lending above a particular LVR.

• In NZ, 90% of each bank’s lending to owner-occupiers needs to be at an LVR of 80% or lower.
• For property investors, 95% of bank lending needs to be at 60% or less.

Think of LVR restrictions as a financial version of the speed limit: nobody likes being told to slow down, but it’s a lot better than the alternative.

Current LVR Rules in New Zealand

The LVR restrictions changed in July 2024. This coincided with the introduction of Debt-to-Income ratios (DTIs). Now, the RBNZ’s LVR restrictions generally require:

• Owner occupiers – people buying a home to live in, including first home buyers – must have a deposit of at least 20% for existing properties.
• Property investors – those buying to rent or for investment – need a deposit of at least 30%.

There are exceptions, of course. Banks can approve a limited number of high-LVR loans, but these are typically reserved for strong applicants with stable incomes and good credit histories. Don’t count on sliding into that category.

The RBNZ can and will change LVR restrictions as it thinks it is best to keep the housing market, and economy, under control. They’ve changed half a dozen times since they were first introduced over 10 years ago, and they’ll probably change again in the next couple of years.

Related material:

• ‍How to buy your first home
• Property investment loans
• How to prepare for a home auction
• Should you buy a ‘new build’ property?
• Calculate the equity in your home
• Debt to income ratio in New Zealand

Can You Borrow More Than 80 Percent to Buy a Property?

The short answer is yes; it is possible. Here are a couple of ways:

• First home buyers might be able to use a government backed First Home Loan.
• You might be able to secure a loan that falls out of the LVR restrictions, i.e. in the 10% of loans a bank can lend to owner-occupiers outside the restrictions.
• Another way is to work with a non-bank lender. The rules only apply to banks, so non-banks aren’t subject to the LVR restrictions. For example, we’re aware of one non-bank lender who offers 80 percent LVR mortgages to property investors.
• Construction loans – this applies where the borrower is constructing a new home, purchasing a newly built home from the developer within six months of completion, or purchasing as part of the Government’s KiwiBuild programme.
• Borrowers with owner occupied and investment property collateral can use the combined collateral exemption to obtain finance up to 70% of the value of the investment properties and 80% on their owner-occupied property.

As you might expect, for each of the points above criteria apply. Get in touch for a complimentary initial chat with our lending team to learn more.

LVR Exemptions and Special Cases

There are some exemptions to LVR rules. The LVR restrictions don't apply to:

1. Refinancing a mortgage (switching banks), where the new loan value doesn’t exceed the original loan value.
2. Portability. This is where the borrower is shifting a loan from one property to another (provided the total value of the loan does not increase).
3. Bridging finance.
4. Property remediation, such as fixing a leaky home.

It’s also important to note when LVR restriction settings change, the new settings only affect new lending. They do not apply retrospectively to existing loans. But a change to LVR settings will impact existing borrowers who try to take out a ‘top-up’ loan that takes the total LVR above the required threshold.

The Bigger Picture: LVRs and the Economy

LVR restrictions are not unique to New Zealand. Many countries use them to cool overheated property markets or protect their financial systems. LVRs are a common tool globally to balance risk between lenders and borrowers. The principle is simple: the less money you put down, the more exposed you and your lender are to fluctuations in the housing market.

The International Monetary Fund has studied these kinds of measures extensively, noting they help reduce systemic risk and protect overall financial stability. In the words of the RBNZ:

“Housing lending makes up about half of bank lending in New Zealand, and a home is usually the single largest asset that a family owns. Property is also a significant part of many New Zealanders' investment portfolios.

A sharp correction in house prices is therefore a significant risk to the financial system, which could negatively impact the functioning of the banking system and cause lasting damage to households and the wider economy.”

The Bigger Picture: LVRs and House Prices

At first glance, you might assume that LVR restrictions have a huge influence on the property market. After all, if the rules say you need a bigger deposit, surely that means fewer people can buy, right?

In practice, the impact is much smaller, especially during periods when house prices are climbing quickly. Here’s why: as property values rise, your mortgage represents a smaller slice of the total value. In other words, your LVR automatically drops without you doing anything. And once your LVR falls, banks are often more willing to let you borrow more against that property.

This is one reason why when the first LVR restrictions in New Zealand were introduced in 2013, the housing market, especially in Auckland, kept rising for another 10 or so years!

Should You Focus on LVR or Focus on What You Can Control?

It’s tempting to complain about LVR rules, house prices, or interest rates, but none of us can control those. What you can control is your own financial preparation. That might mean saving a bigger deposit, reducing debt, and improving your credit profile, which all make you more attractive to lenders (banks and non-bank lenders).

Instead of fretting about RBNZ policies, which will likely change again soon anyway, focus on your own game. Build your deposit, get your finances in order, and work out what you can realistically afford. If you can’t change the wind, adjust your sails.

The Bottom Line: LVRs in New Zealand

LVRs may feel like a frustrating barrier, but they exist to protect both borrowers and the wider economy. If you’re planning to buy a property, or another property, focus on what you can control. Your savings, your debt, and your knowledge. By doing so, you’ll not only increase your chances of mortgage approval, you’ll also be setting yourself up for long-term financial stability.

If you’re ready to take the next step, get in touch with the Become Wealth lending team for expert guidance tailored to your situation. Property may be one of the biggest investments of your life, make sure you approach it with clarity and confidence.