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1 December 2016

Loan to Value Ratio

The Reserve Bank of New Zealand (RBNZ) has announced changes to the Loan to Value Ratio (LVR) restrictions, which became effective from 1 September 2016. These changes will have an impact on those wanting to invest in the property market.

The changes place restrictions on how much investors can borrow and tighten the limits on what banks can lend to those with deposits under 20% of the purchase price.

The LVR restrictions apply to lending for all residential owner-occupied properties, as well as lending on residential investment properties across New Zealand. The amount banks are allowed to lend varies depending on the location of the property and its intended purpose.

Many of the previous LVR's have only been targeted towards the Auckland region due to the concerns with the housing market in this area. These restrictions will now apply right across New Zealand. 

With these changes, you may need a larger deposit when you borrow to buy a home.

What are LVR restrictions?

The LVR is a measure of how much a bank lends against residential property, compared to the value of that property.

To calculate your potential LVR to see if you may be considered as having a ‘high LVR’ you can divide your desired loan value by the value of the property you intend on purchasing.

For Example:

Your deposit: $50,000
Value of the property: $250,000
Your home loan: $200,000
Your LVR: 80%


What do the LVR restrictions mean for you?

Under the new restrictions:

  • A 20% deposit is generally required if you are buying an owner-occupied property to live in.
  • If you are buying a residential investment property, or you are using a residential investment property you already own as security for a new loan, a 40% deposit is generally required.

Will the LVR restrictions affect me?

If your intended purchase is not a residential investment property you will not be affected by the LVR restrictions if you have a deposit of at least 20% (an LVR of 80% or less).

If you have less than 20 percent deposit (an LVR of above 80%) your application will be subject to RBNZ LVR restrictions and normal lending criteria. A low equity margin may apply.

Are there instances when high LVR lending is not subject to LVR restrictions?

Yes, there are some instances where the RBNZ has provided exemptions to their LVR restrictions. These include:

  • For those wishing to buy residential investment property with less than a 40% deposit, combining other property (such as residential non-investment property) into the application may have the effect of lowering the overall LVR.
  • Residential construction loans - building your home could be an option as some new residential construction loans are exempt from the LVR restrictions. The bank will need to approve your loan before you commence building.
  • Bridging loans - may be exempt from the LVR restrictions if you want to borrow to complete the purchase of a new home which has a settlement date prior to the unconditional sale of your existing home.
  • Refinancing - the refinancing of existing residential mortgage loans for all borrower types can be exempt from high LVR restrictions, subject to certain conditions.

It is important to note that bank lending is also subject to banks’ internal lending guidelines and policies, within the RBNZ’s minimum LVR requirements. For example, banks may set internal policies for permissible LVR limits on new construction lending even if the lending qualifies for a high-LVR exemption under RBNZ restrictions. Similarly exempt Welcome Home Loans will be subject to eligibility criteria under the scheme.

The above information is of a general nature only. You should contact our firm for advice relating to your specific circumstances.


Michael Vanner

About Michael Vanner

Michael is a member of Saunders Robinson Brown’s Commercial Team, having previously worked in our Property Team for over three years.

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Rebecca Mao

About Rebecca Mao

Rebecca joined Saunders Robinson Brown in 2016. She is a member of our Commercial Team.

View all posts by Rebecca Mao