Buying guide

Explained: LVR restrictions

What are LVR restrictions? And how do they affect what you can borrow?

Last updated: 4 August 2023

You may have heard the term, LVRs (loan-to-value ratios) and now that you’re saving for a house, it’s time to find out more. Put simply, a loan-to-value ratio (LVR) tells you how much deposit you’ll need to save in order to get a mortgage.

What you’ll learn:

  • What is the loan-to-value ratio (LVR)?
  • What the current LVR restrictions are
  • How LVR restrictions affect what you can borrow
  • What LVR exemptions there are

What is a loan-to-value ratio?

A loan-to-value ratio (LVR), set by the Reserve Bank of New Zealand (RBNZ), is a measure of how much a bank will lend against a mortgaged property, compared to the value of the property. It caps how much a bank can lend relative to the purchase price.

For instance, if the lender values a property you plan to buy as your main home at $500,000, you have a $100,000 deposit and need to borrow $400,000 to buy the property, this is an 80% LVR.

The current LVR limits state that owner-occupiers should have a 20% deposit when they borrow to buy a home, while investors are expected to have a 35% deposit.

The lower the LVR, the better, your lender will tell you, because there’s less risk, as you own more of the home at the outset.

As soon as your LVR goes over 80%, the cost of securing the home loan will increase. If you’re borrowing over 80%, you may be asked to pay for Lenders Mortgage Insurance. This protects the lender if you default on the loan and if there’s a shortfall following the sale of the property. You also won’t get the best deals from the banks on their mortgage rates either if you’re borrowing more than 80%.

Why do LVRs exist in Aotearoa New Zealand?

LVRs were introduced in 2013 by the Reserve Bank in response to rapid house price growth after a sharp increase in the use of low deposit loans.

The Reserve Bank explains, with house lending taking up half of all the bank lending in Aotearoa New Zealand, a sharp correction in house prices represents a significant risk to the overall financial system, to households, and to the wider economy.

LVR restrictions were taken off altogether in the unusual times of 2020 during the Covid-19 pandemic. They were put back in place in March 2021, then tightened further in November 2021 to calm the house-buying frenzy that happened after the Covid lockdowns when interest rates were so low.

What are LVR restrictions?

Banks have their own lending criteria to individual borrowers and may choose not to provide finance in certain circumstances.

Under the LVR restrictions, banks are allowed to make exemptions and agree to smaller deposits on a certain percentage of their loans. LVR restrictions set a “speed limit” on how much new low-deposit lending (below 20% deposits for owner occupiers) banks can do.

The speed limits at the moment are that:

  • 15% of a bank’s mortgage lending can be done at a higher LVR than the norm for owner occupiers
  • and 5% of new home loan lending for property investors

From June 1, 2023, the Reserve Bank loosened LVR restrictions, satisfied that national house prices had fallen sufficiently since late 2021 when it last raised restrictions, which means that people may not need to borrow at such high LVRs as before. The central bank is also reassured that LVR limits have built resilience in the financial system.

What are LVR exemptions?

There are some exemptions to LVRs. For instance, first home buyers may only need to save a 10% deposit for new-builds if their bank agrees to it.

There are also exemptions for:

  • non-routine repair work, such as work on a leaky home
  • new-build properties
  • refinancing existing loans
  • shifting loans from one property to another as long as the loan doesn’t increase

Loans made under the Kāinga Ora Mortgage insurance scheme (including First Home Loans) are also exempt.

Written with Kelvin Davidson, Chief Property Economist, CoreLogic.

Article reviewed by mortgage expert Karina Reardon,

*We hope this article has provided some helpful information. It's based on our experience and is not intended as a complete guide. Of course, it doesn’t consider your individual needs or situation. If you're thinking about buying or selling a property, you should always get specific advice.


Gill South
Gill South