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🏦 Loan to Value Ratio (LVR) Guide - New Zealand

Loan to Value Ratio (LVR) is the percentage of a property's value that you borrow. It's fundamental to NZ mortgage lending, determining deposit requirements, interest rates, and whether you pay Low Equity Premiums (LEP) or Lenders Mortgage Insurance (LMI). The Reserve Bank sets LVR restrictions to maintain financial stability. Understanding LVR helps you plan deposits, negotiate better rates, and navigate RBNZ lending rules.

Key Point: LVR = Loan Amount ÷ Property Value × 100. An 80% LVR means 20% deposit. RBNZ restrictions: owner-occupiers can borrow up to 80% LVR without restrictions (20% deposit), with only 20% of bank lending allowed above 80% LVR. Investors need 30% deposit (70% LVR max), with 10% of lending allowed above 70% LVR. LVR above 80% triggers Low Equity Premium (LEP) or Lenders Mortgage Insurance (LMI), adding 0.25-1.00% to your rate. Lower LVR means better rates, more lending options, and no additional costs. A $600K property with $120K deposit (20%) = 80% LVR. With $150K deposit (25%) = 75% LVR, securing better terms.

LVR Formula and Calculation

LVR = Loan Amount ÷ Property Value × 100
Or alternatively:
LVR = (Property Value - Deposit) ÷ Property Value × 100

Example:

Property value: $500,000
Deposit: $100,000
Loan amount: $400,000
LVR = $400,000 ÷ $500,000 × 100 = 80%

LVR Levels and Deposit Requirements

LVR Deposit Owner-Occupier Status Investor Status
95% 5% High LVR (new builds only) Not available
90% 10% High LVR (limited availability) Not available
85% 15% High LVR (competitive) Not available
80% 20% Standard (no restrictions) High LVR
75% 25% Low equity, good rates High LVR
70% 30% Excellent position Standard (no restrictions)
60% 40% Best rates available Strong position
50% 50% Premium rates, maximum flexibility Excellent position

RBNZ LVR Restrictions (Current Rules)

Reserve Bank limits how much high-LVR lending banks can do:

Owner-Occupiers:

Up to 80% LVR: No restrictions (standard lending)
Above 80% LVR: Only 20% of bank's new lending allowed
Above 90% LVR: Very limited, mostly new builds

Investors (Rental Properties):

Up to 70% LVR: No restrictions (30% deposit minimum)
Above 70% LVR: Only 10% of investor lending allowed
Above 80% LVR: Extremely rare, almost unavailable
⚠️ High-LVR Competition

Banks have limited high-LVR lending quota. If 20 people apply for loans above 80% LVR and bank can only approve 5, they choose strongest applications. High-LVR lending is competitive. Pristine credit, stable employment, and strong income essential.

Low Equity Premium (LEP) / Lenders Mortgage Insurance (LMI)

LVR above 80% triggers additional costs:

LVR Level LEP/LMI Rate Annual Cost on $400K Loan
85% +0.25-0.50% $1,000-$2,000
90% +0.75-1.00% $3,000-$4,000
95% +1.00-1.50% $4,000-$6,000

How LEP works:

  • Added to your interest rate until you reach 80% LVR
  • Protects the bank, not you
  • Can be removed once you pay down to 80% LVR or property value increases
  • Paid annually as part of interest rate

Removing LEP/LMI:

Option 1: Pay down principal to 80% LVR
Option 2: Property value increases naturally
Option 3: Get new valuation showing higher value
Request LEP removal from bank once 80% LVR reached

LVR and Interest Rates

Lower LVR = better interest rates:

LVR Level Typical Rate Difference Example Rate
50% LVR Best available 6.20%
60-70% LVR Standard 6.35%
80% LVR Standard 6.50%
85% LVR +0.25-0.50% (LEP) 6.75-7.00%
90% LVR +0.75-1.00% (LEP) 7.25-7.50%

Impact on $500K loan over 30 years:

  • At 6.35% (70% LVR): $3,136/month, total interest $629,960
  • At 6.50% (80% LVR): $3,160/month, total interest $637,600
  • At 7.25% (90% LVR): $3,413/month, total interest $728,680
  • Difference: 90% LVR costs extra $99,080 in interest over loan life!

LVR Exemptions (No Restrictions Apply)

These loans don't count toward bank's high-LVR quota:

  • New builds: Construction loans or buying new from developer (within 6 months)
  • Refinancing: Moving bank without increasing loan amount
  • Portability: Moving loan to new property without increasing
  • Bridging finance: Short-term overlap between buying/selling
  • Property remediation: Fixing leaky homes, weathertightness
  • Kainga Ora schemes: First Home Loans, other government programs
💡 New Build Advantage

New builds exempt from LVR restrictions. Can get 95% LVR (5% deposit) without competing for limited high-LVR quota. KiwiSaver HomeStart grant doubles for new builds ($10K vs $5K per person). However, new builds often premium priced. Do the math carefully.

Strategies for Different LVR Situations

If You Have Less Than 20% Deposit:

  • Consider new build: Exemption from restrictions, 5-10% possible
  • Use KiwiSaver: Withdraw savings + HomeStart grant
  • Family guarantor: Parent provides security on their property
  • Non-bank lenders: More flexible but higher rates
  • Save longer: Extra 6-12 months to reach 20%
  • Buy cheaper property: Lower purchase price = lower deposit needed

If You Have 20-25% Deposit:

  • Standard lending, no restrictions
  • Shop multiple banks for best rate
  • Consider using cashback offers
  • Keep emergency fund separate (don't use all savings)

If You Have 30%+ Deposit:

  • Negotiate better rates (0.10-0.25% discount possible)
  • Consider splitting deposit across multiple properties
  • Investor lending available at this level
  • More flexible loan structures available

LVR Over Time

Your LVR improves naturally through:

1. Principal repayments (loan decreases)
2. Property value increases (denominator grows)
3. Combination of both

Example: $600K property, $480K loan (80% LVR) after 5 years:

Scenario Loan Balance Property Value New LVR
Just repayments (0% growth) $440,000 $600,000 73%
3% annual growth $440,000 $696,000 63%
5% annual growth $440,000 $766,000 57%

Lower LVR means accessing equity for renovations, investment, or debt consolidation.

🔢 LVR Calculations

Example 1: Standard Purchase - 20% Deposit

Purchasing $650,000 home with 20% deposit:

Property value: $650,000
Deposit (20%): $130,000
Loan required: $520,000
LVR = $520,000 ÷ $650,000 × 100 = 80%

Position: Standard 80% LVR, no LEP, full bank choice, standard rates. No RBNZ restrictions apply.

Example 2: Low Deposit - 10% Down

Purchasing $550,000 home with $55,000 saved:

Property value: $550,000
Deposit (10%): $55,000
Loan required: $495,000
LVR = $495,000 ÷ $550,000 × 100 = 90%

Challenges:

  • High LVR, competes for limited bank quota (20% of lending)
  • LEP of 0.75-1.00% added to rate
  • $495K loan at 7.25% (vs 6.50% at 80%) = extra $3,708/year
  • Requires perfect credit, stable employment
  • May be declined if bank quota full

Example 3: First Home Buyer with KiwiSaver

Sarah & Tom buying $680,000 home:

Their Resources:

Cash savings: $65,000
Sarah KiwiSaver: $42,000 (withdraw $41,000)
Tom KiwiSaver: $38,000 (withdraw $37,000)
HomeStart grant: $10,000 ($5K each, existing home)
Total deposit: $153,000

LVR Calculation:

Property value: $680,000
Deposit: $153,000 (22.5%)
Loan: $527,000
LVR = $527,000 ÷ $680,000 × 100 = 77.5%

Result: Excellent 77.5% LVR! Below 80%, no LEP, standard rates, strong negotiating position. KiwiSaver made the difference.

Example 4: Investment Property - 30% Required

Investor buying $500,000 rental:

Property value: $500,000
Minimum investor deposit (30%): $150,000
Maximum loan: $350,000
LVR = $350,000 ÷ $500,000 × 100 = 70%

With 25% deposit (trying to push limits):

Deposit: $125,000 (25%)
Loan: $375,000
LVR: 75%
Status: High LVR for investor
Bank quota: Only 10% of investor lending
Likely declined unless exceptional circumstances

Investor reality: Need 30% minimum. Some banks want 35-40% for strong DSR and comfortable approval.

Example 5: LVR Improvement Over Time

Original purchase in 2020:

Property value: $600,000
Loan: $480,000 (80% LVR)
LEP: Not applicable (exactly 80%)

After 3 years (2023):

Property value: $660,000 (10% growth)
Loan balance: $452,000 (paid down $28K)
New LVR = $452,000 ÷ $660,000 × 100 = 68.5%

Benefits of 68.5% LVR:

  • Can access $50-80K equity for renovations
  • Refinance at better rate (0.15% better = $678/year saved)
  • Use equity as deposit for investment property
  • Excellent negotiating position with banks

Example 6: LEP Cost Analysis

Comparing 80% vs 90% LVR on $500K property:

Option A: 80% LVR ($100K deposit):

Loan: $400,000
Rate: 6.50% (standard)
Monthly: $2,528
Annual: $30,336

Option B: 90% LVR ($50K deposit):

Loan: $450,000
Rate: 7.25% (6.50% + 0.75% LEP)
Monthly: $3,070
Annual: $36,840

Comparison:

Factor 80% LVR 90% LVR Difference
Monthly cost $2,528 $3,070 +$542/month
Annual cost $30,336 $36,840 +$6,504/year
5-year cost $151,680 $184,200 +$32,520

Analysis: Saving extra $50K for 20% deposit takes time, but saves $32,520 over 5 years. If you can save $50K in less than 5 years, 80% LVR is better financial decision.

🌍 Real-World LVR Stories

1
The 90% LVR Trap

James, 28, impatient first home buyer

His Decision:

  • Saved $48,000 over 3 years
  • Wanted to buy immediately
  • Purchased $480,000 apartment
  • 90% LVR ($48K deposit, $432K loan)
  • Thought: "I'll pay off LEP quickly"

The Reality:

Rate: 7.15% (6.40% + 0.75% LEP)
Monthly: $2,924
LEP cost: $270/month, $3,240/year

3 Years Later:

  • Property value dropped to $465,000 (market correction)
  • Loan balance: $408,000
  • LVR: 87.7% (still high!)
  • Still paying LEP
  • Paid $9,720 in LEP over 3 years
  • Trapped - can't refinance, can't remove LEP

Lesson: High LVR + falling prices = stuck. Extra year of saving would have saved thousands.

2
Strategic 25% Deposit

Emma, 32, patient approach

Her Strategy:

  • Saved $70,000 over 4 years
  • Could have bought at 10% ($30K) but waited
  • Plus KiwiSaver: $35,000
  • Total: $105,000 available

The Purchase:

Property: $420,000 (bought under budget)
Deposit: $105,000 (25%)
Loan: $315,000
LVR: 75%

The Benefits:

  • Rate: 6.30% (0.20% discount for 75% LVR)
  • Monthly: $1,960
  • No LEP, saved $2,500/year vs 90% LVR
  • Strong equity position from day one
  • Market dip didn't affect her (still 65% LVR)

5 Years Later:

  • Property: $490,000
  • Loan: $285,000
  • LVR: 58%
  • Used equity for renovations ($40K)
  • Still only 66% LVR post-reno
  • House now worth $540K

Lesson: Lower LVR creates options and financial security. Patience pays.

3
New Build 5% Deposit Success

Mike & Lisa, used new build exemption

Their Situation:

  • Combined KiwiSaver: $65,000
  • Cash savings: $15,000
  • HomeStart grant (new build): $20,000
  • Total: $100,000

New Build Purchase:

New build price: $720,000
5% deposit allowed: $36,000
Loan: $684,000 (95% LVR)
Used $36K, kept $64K for costs/furniture

Why It Worked:

  • New builds exempt from LVR restrictions
  • No competition for high-LVR quota
  • LEP applied (0.85%) but acceptable
  • 5-year plan to pay down to 80% LVR

3 Years Later:

  • Aggressive principal payments
  • Loan: $625,000
  • LVR: 86.8% (from 95%)
  • One more year to 80%, then remove LEP
  • On track to save $58,000 in interest

Lesson: New build exemption powerful for low deposits, but need paydown plan.

4
Investor 40% Deposit Strategy

David, 45, experienced investor

His Approach:

  • Buying investment property #3
  • Could do 30% minimum (70% LVR)
  • Chose 40% deposit instead (60% LVR)

The Math:

Property: $550,000
Deposit: $220,000 (40%)
Loan: $330,000
LVR: 60%

Benefits:

  • Rate: 6.25% (0.25% discount vs 70% LVR)
  • Monthly: $2,032
  • Lower debt service improves DSR
  • DSR: 1.18 (vs 0.96 at 70% LVR)
  • Bank approved easily
  • Cashflow positive from day one

Portfolio View:

  • 3 properties, total value: $1.6M
  • Total loans: $850K
  • Portfolio LVR: 53%
  • Strong equity for property #4
  • All cashflow positive
  • Weathered rate rises comfortably

Lesson: Lower LVR on each property = sustainable portfolio. Don't max leverage.

🎯 Test Your Knowledge

Quiz on Loan to Value Ratio (LVR) in NZ

1. LVR formula is:
Loan Amount ÷ Property Value × 100
Deposit ÷ Property Value × 100
Property Value ÷ Loan Amount × 100
Loan ÷ Deposit × 100
2. 80% LVR means:
80% deposit
20% deposit
80% equity
$80K deposit
3. RBNZ owner-occupier LVR restriction:
10% of lending can exceed 80%
20% of lending can exceed 80%
30% of lending can exceed 80%
No restrictions
4. Investor minimum deposit requirement:
20%
25%
30%
40%
5. $500K property, $400K loan. LVR is:
20%
80%
100%
125%
6. LEP/LMI triggers at LVR:
70%
75%
Above 80%
90%
7. LEP at 90% LVR typically adds:
0.10-0.25%
0.25-0.50%
0.75-1.00%
2.00%
8. LEP/LMI protects:
The bank/lender
The borrower
Both equally
The property
9. To remove LEP, LVR must reach:
70%
75%
80% or below
85%
10. New build LVR exemption allows:
No deposit required
5-10% deposit possible (no quota competition)
50% deposit only
Same as existing homes
11. Refinancing without increasing loan:
Subject to LVR restrictions
Exempt from LVR restrictions
Requires 20% deposit again
Not allowed
12. Lower LVR (e.g. 60-70%) provides:
No benefits
Better interest rates (0.10-0.25% discount)
Higher interest rates
Same rates as 80%
13. $600K property, $120K deposit. LVR is:
20%
50%
80%
120%
14. KiwiSaver HomeStart grant for existing homes:
$10K per person (5+ years)
$5K per person (5+ years)
$20K per couple
Not available
15. Property value increases from $500K to $550K, loan stays $400K:
LVR increases
LVR decreases (improves)
LVR stays same
Not calculable
16. 95% LVR available for:
All properties
New builds only (exemption)
Investment properties
Never available
17. High-LVR lending is competitive because:
Banks prefer high LVR
Only 20% of bank's lending can exceed 80% LVR
No restrictions exist
Government limits it
18. Bridging finance is:
Subject to LVR restrictions
Exempt from LVR restrictions
Not allowed in NZ
Only for investors
19. Investor LVR restriction for loans above 70%:
20% of lending allowed
10% of lending allowed
30% of lending allowed
No lending allowed
20. LVR improves through:
Property value decrease
Principal repayments and/or property value increase
Taking more debt
Refinancing only
21. $700K property with 95% LVR loan, property drops to $650K:
LVR improves
LVR worsens (over 100% possible = negative equity)
LVR stays same
Bank forgives difference
22. Best strategy for first home buyers:
Buy ASAP with 5-10% deposit
Save for 20%+ deposit, avoid LEP costs
Maximum leverage always best
Wait for 50% deposit
23. Kainga Ora First Home Loans are:
Subject to LVR restrictions
Exempt from LVR restrictions
Require 30% deposit
Not available anymore
24. Property remediation (fixing leaky home) loans:
Subject to LVR restrictions
Exempt from LVR restrictions
Not available
Require 50% equity
25. Most important LVR principle:
Always maximize leverage
LVR doesn't matter if property rises
Lower LVR = better rates, more security, lower costs, more options
Banks set LVR randomly

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