Think of the Loan to Value Ratio (LVR) like this: What percentage of the house is covered by the mortgage… Or, in other words, what percentage of the house does the bank own?
If your house is worth $400,000 and your mortgage is worth $300,000, then your Loan to Value Ratio or LVR is 75% because the bank has lent you 75% of your house.
If the value of your house increases to, for example, $500,000, your new Loan to Value Ratio is 60% (because $300,000 is 60% of the new value – $500,000).
As at February 2020, banks will happily lend up to 80% against the house you live in. The banks will sometimes go as high as 90% or even 95% but they have restrictions on the amount of money that can be lent to low deposit borrowers to purchase existing houses. Often the banks are stretched to their restricted limit and as a result are hesitant to give out pre-approvals for low deposit (high LVR) mortgages.
For investment properties, most banks will lend up to 70% although there are exceptions to this.
The Reserve Bank introduced LVR restrictions on 1st October 2013 as another means to control the runaway prices that were affecting some areas of New Zealand residential houses. With unfettered access to finance, buyers were continuing to push prices up, particularly in Auckland. Putting a restriction on how much deposit own-home buyers required as well as even harsher requirements on investment property purchasers was seen as a way to lower the excitement in the residential home market without increasing interest rates.
Since the introduction of LVR restrictions and "speed limits", the RBNZ has made several updates to the policy. This reflects the general success of the policy whereby investors particularly are allowed to borrow a higher LVR than the initial 2013 policy allowed
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