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What does LVR mean?

Date Published: 26 October 2023

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 $800,000 and your mortgage is $600,000, then your loan-to-value ratio (LVR) is 75%. This is because the bank has lent you 75% of your house’s value.

If the value of your house increases to, for example, $900,000, your new LVR is 66.6%. This is because the $600,000 mortgage is 1/3 of the new value – $900,000).

What LVR will banks currently lend up to?

As at October 2023, 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 for an existing house. Only 15% of the bank’s loans can be for mortgages with >20% deposit. Often the banks are at the 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 65% LVR. They can lend at a higher LVR but only up to 5% of a bank’s total new investor lending.

There are exemptions the the LVR rules. These include:

  • borrowing for a new build
  • bridging finance
  • refinancing of existing loans
  • non-routine repair work (for example, fixing leaky homes) on existing properties
  • loans made under the Kāinga Ora Mortgage (including First Home Loans)

For more information on exemptions, visit the Reserve Bank of New Zealand.

Why do the banks care about LVRs?

The Reserve Bank introduced LVR restrictions on 1st October 2013 as another means to control the runaway house prices that were affecting some areas of New Zealand. 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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