Understanding loan-to-value ratio

An LVR is not cute text-talk for your significant other, it stands for loan-to-value ratio (LVR) and it looks at how much you're looking to borrow, relative to the value of the house you want to buy.

An LVR looks at the size of your loan in comparison to the value of your property. For example, if your house is worth $500,000 and you have a deposit of $100,000, you need a home loan of $400,000, which would make your LVR 80%.

Working out how big a deposit you need

  • Owner-occupiers: If you’re buying a house to live in, you’ll need a deposit of at least 20% - this will give you an LVR of 80%. (If you don't have a 20% deposit, you might want to look into low deposit options for first time buyers.)
  • Investors: If you’re buying a residential investment property, the LVR is set at 70%, meaning you’ll need a deposit of at least 30%.

Exceptions to the rule

When it comes to LVRs over 80%, exceptions can be made in certain circumstances. If you have a low deposit, it’s still worth talking to one of our home loan experts about your options. We've also got a package for first home savers that might be good for you.

If you’re a first-time buyer, there are also lower deposit options worth exploring, like the Government’s First Home Loan and First Home Grant policies, which can help first timers buy houses with deposits of just 5%.

Why do we have LVRs?

The Reserve Bank of New Zealand is New Zealand’s central bank, and it supervises all registered banks operating in the country.

In October 2013, the Reserve Bank introduced LVR restrictions due to its concerns about rapidly rising house prices, coupled with an increasing use of low-deposit loans. The central bank hoped that not only would LVRs take some of the heat out of the housing market, by making it harder to buy a property, but that having a larger deposit would also provide borrowers with a bigger buffer if property prices fell.

If you took out your home loan before October 2013, then the LVR restrictions won’t apply to that loan - unless you want to top it up.

You can read more about LVR restrictions and why they were put in place on the Reserve Bank’s website.

Talk to an expert

At any stage of your home buying journey, our home loan experts are available to give you obligation-free advice and guide you through the process right to the end.