Understanding Loan-to-Value Ratio (LVR) and How It Affects Your Deposit
If you're preparing to buy your first home in New Zealand, you've probably heard of the term "Loan-to-Value Ratio" or LVR. But what does it actually mean—and why does it matter when it comes to your deposit?
Let’s break it down.
What is LVR?
LVR stands for Loan-to-Value Ratio. It’s a measure used by lenders to compare the size of your loan to the value of the property you’re purchasing.
The formula is simple:
LVR = (Loan amount ÷ Property value) x 100
So, if you’re buying a $600,000 home and you have a $480,000 mortgage, your LVR is 80%.
Why LVR Matters
LVR plays a significant role in how much deposit you need—and how your lender views your application. It’s also a central part of lending rules set by the Reserve Bank of New Zealand (RBNZ), which governs how much low-deposit lending banks can do.
As a general guide:
An LVR of 80% means you have a 20% deposit.
An LVR of 90% means you have a 10% deposit.
The lower your LVR (Loan-to-Value Ratio), the more equity you have — that’s the difference between what your home’s worth and how much you still owe — which makes you less risky to the lender.
Current LVR Rules in New Zealand
As of recent policy settings by the Reserve Bank:
Owner-occupiers (like first home buyers) can usually borrow with an LVR of up to 80%, but some banks can lend to a limited number of customers with LVRs above that (e.g., 85%, 90% or 95% for First Home Loans).
Investors typically need a lower LVR, often 65% or below (meaning at least a 35% deposit).
These rules are regularly reviewed and may change depending on economic conditions and housing market pressures.
How Your Deposit Is Affected
Your deposit size determines your LVR.
In general:
A 20% deposit or lower LVR puts you in the best position. You’ll avoid low-deposit penalties and access better interest rates.
A 10% deposit is common for first home buyers, but may attract a higher interest rate or require additional conditions.
A 5% deposit is possible through schemes like the First Home Loan, but this comes with stricter criteria.
What Happens If You Have a High LVR?
If your LVR is above 80%, lenders may:
Charge a higher interest rate (Low Equity Margins)
Require a registered valuation of the property
Apply stricter assessment criteria (e.g., affordability stress tests) limiting your potential borrowing.
This is because the lender is taking on more risk—and they need to offset that risk somehow.
How to Lower Your LVR
If your LVR is high and you're looking to improve your position, here are a few strategies:
Increase your deposit by saving more or using KiwiSaver.
Buy a lower-priced property
Use gifted funds from family (banks will want to know if these are gifts or loans)
Consider co-ownership models like YouOwn to reduce your required loan amount
LVR Exceptions for New Builds
One great opportunity for first home buyers is that New Builds are exempt from LVR restrictions.
This means:
Banks can more easily approve loans over 80% LVR
You may only need a 10% deposit to buy a brand-new home
This is part of the government’s strategy to encourage new housing supply and is a valuable option if you’re struggling to reach a 20% deposit.
Don’t Let LVR Confuse You — Get Advice
LVR can seem like just another technical term in the home-buying process, but it’s essential to understand how it impacts your loan and deposit. A mortgage adviser can help you calculate your LVR, assess your deposit options, and determine whether you qualify for low deposit lending or special schemes.
A small change in deposit or purchase price can make a big difference to your borrowing power.
DISCLAIMER: This article is for informational purposes only. Lending criteria and LVR rules are subject to change. Always consult a registered financial adviser or mortgage adviser for personalised advice before making any financial decisions.
