Introduction

If you're shopping for a mortgage in New Zealand, you'll quickly encounter the term "LVR" - Loan-to-Value Ratio. Understanding LVR is crucial because it determines how much deposit you need, whether you'll pay extra fees, and ultimately whether you'll be approved for a mortgage at all.

LVR restrictions have been a significant feature of New Zealand's mortgage market for years, affecting thousands of buyers. Let's break down everything you need to know about LVRs, how they work, and what they mean for your home buying journey.

What is LVR (Loan-to-Value Ratio)?

LVR is a simple but powerful concept. It's the percentage of a property's value that you're borrowing from a lender.

Example 1:

• Property value: $700,000
• Loan amount: $560,000
• Deposit: $140,000
• LVR: ($560,000 ÷ $700,000) × 100 = 80%

Example 2:

• Property value: $650,000
• Loan amount: $585,000
• Deposit: $65,000
• LVR: ($585,000 ÷ $650,000) × 100 = 90%

The lower your LVR, the less risky you are to the lender (because you have more equity in the property). The higher your LVR, the riskier you appear (because you have less equity as a buffer).

Understanding Deposits and LVR

Your deposit is the flip side of LVR. If you have an 80% LVR, you have a 20% deposit.

Quick reference:

• 95% LVR = 5% deposit
• 90% LVR = 10% deposit
• 85% LVR = 15% deposit
• 80% LVR = 20% deposit
• 70% LVR = 30% deposit

Example calculations:

For a $600,000 property:

• 5% deposit = $30,000 (95% LVR, borrowing $570,000)
• 10% deposit = $60,000 (90% LVR, borrowing $540,000)
• 20% deposit = $120,000 (80% LVR, borrowing $480,000)

For an $850,000 property:

• 10% deposit = $85,000 (90% LVR, borrowing $765,000)
• 20% deposit = $170,000 (80% LVR, borrowing $680,000)

Why LVR Matters

LVR affects several critical aspects of your mortgage:

1. Approval Likelihood

Banks have limits on how many high-LVR loans they can issue. If you need a 90% LVR loan but the bank has hit its limit for these loans, you'll be declined even if you otherwise qualify.

2. Interest Rates

Higher LVR loans often attract a "low-equity margin" or "low-equity premium" - an additional interest rate charge, typically 0.25-0.75% above standard rates.

3. Loan Features

High-LVR loans may have restrictions:

• Limited offset or redraw facilities
• Fewer choices in loan structures
• Stricter ongoing requirements

4. Future Flexibility

Starting with low equity limits your options. If property values fall or remain flat, you could find yourself unable to refinance or access equity for years.

Current LVR Restrictions in New Zealand

The Reserve Bank of New Zealand (RBNZ) imposes LVR restrictions on banks to promote financial stability and manage housing market conditions. These restrictions limit how many high-LVR loans banks can issue.

Current framework (as of November 2025):

For Owner-Occupiers (People Buying to Live In)

Existing properties:

• Maximum 20% of new lending can be above 80% LVR
• This means only 20% of the bank's home loans can be to people with less than 20% deposit
• Most borrowers need 20% deposit (80% LVR)

New builds:

• More favorable treatment under current settings
• Easier access to 90% LVR lending
• First-home buyers can access 10% deposit options more readily on new builds

For First-Home Buyers

First-home buyers continue to receive special consideration:

First Home Loan (government scheme):

• Can borrow with just 5% deposit (95% LVR)
• Available through Kāinga Ora and selected banks
• Income caps: Singles ~$95,000-$100,000, Couples ~$150,000 (varies by region)
• House price caps vary by region (typically $600,000-$875,000)
• Must meet first-home buyer criteria

Bank first-home buyer exceptions:

• Banks allocate part of their high-LVR capacity specifically for first-home buyers
• More accessible 90% LVR (10% deposit) options than for existing homeowners
• Particularly favorable for new builds

For Investors

Investment properties:

• Maximum 5% of new lending can be above 70% LVR for investors
• This means investors typically need 30% deposit (70% LVR)
• Significantly stricter than owner-occupiers
• Banks are very cautious with investor lending at high LVRs

How Much Deposit Do You Actually Need?

The answer depends on several factors:

Standard Scenario: 20% Deposit (80% LVR)

This is the baseline for most buyers of existing properties. Banks have unlimited capacity to lend at this LVR.

Advantages:

• No low-equity margin on interest rate
• Wider lender choice
• Better loan features available
• Easier approval process
• More negotiating power on rates

Disadvantages:

• Takes longer to save
• Miss out on property while saving
• Risk of property prices rising while you save

Example: For a $650,000 house, you need $130,000 deposit plus costs (approximately $145,000 total).

First-Home Buyer: 10% Deposit (90% LVR)

Available for first-home buyers, particularly on new builds, subject to bank allocation.

Advantages:

• Get into property sooner
• Save less before buying
• Benefit from any property price increases sooner

Disadvantages:

• Low-equity margin adds to your rate (0.25-0.75%)
• Fewer lenders available
• More stringent income/expense assessment
• Limited allocation means you compete with other buyers

Example: For a $600,000 house, you need $60,000 deposit plus costs (approximately $75,000 total).

Welcome Home Loan: 5% Deposit (95% LVR)

Available for first-home buyers meeting specific criteria through Kāinga Ora government-backed scheme.

Advantages:

• Lowest deposit requirement
• Get into property fastest
• Can access homeownership years earlier

Disadvantages:

• House price caps apply (varies by region, e.g., $600,000-$875,000 depending on location)
• Income caps apply (singles: ~$95,000-$100,000, couples: ~$150,000-$160,000 - varies by region)
• Low-equity margin increases costs
• Must meet first-home buyer definition
• Available only through specific lenders (Kāinga Ora partners)

Example: For a $650,000 house, you need $32,500 deposit plus costs (approximately $47,000 total).

Existing Homeowners with Low Equity: 20-30% Deposit

If you're moving up and have built limited equity in your current home, you may need a larger deposit proportion for your next purchase.

Example: Your current home is worth $600,000 with a $450,000 mortgage. After selling costs, you'll have approximately $130,000-$140,000. To buy a $750,000 home, you'd need closer to 20-25% deposit, meaning you'd need additional savings or a cheaper property.

Low-Equity Margins Explained

When your LVR is above 80%, banks charge a low-equity margin (also called low-equity premium or LEP). This is additional interest charged because of the higher risk.

Typical low-equity margins (November 2025):

• 85% LVR: +0.25% per annum
• 90% LVR: +0.35-0.60% per annum
• 95% LVR: +0.60-0.85% per annum

Good news: Once your LVR drops to 80% (through a combination of property value increases and paying down your mortgage), you can request removal of the low-equity margin.

Calculating Your LVR: Important Considerations

Property Value vs Purchase Price

Banks use the lower of the purchase price or registered valuation.

Scenario 1: Valuation supports purchase price

• Purchase price: $700,000
• Bank valuation: $720,000
• LVR calculated on: $700,000 (purchase price)
• With $140,000 deposit, LVR = 80%

Scenario 2: Valuation below purchase price

• Purchase price: $700,000
• Bank valuation: $670,000
• LVR calculated on: $670,000 (lower valuation)
• With $140,000 deposit, LVR = 79% of purchase but 88% based on valuation
• Result: You need an additional $30,000 deposit or must renegotiate the price

This is why it's crucial to have a property professionally valued and why sometimes deals fall through when valuations come in low.

Purchase Costs Affect Your Required Savings

Your total required savings include more than just the deposit:

Typical purchase costs:

• Deposit: e.g., $120,000 for 20% of $600,000
• Legal fees: $1,500-$3,000
• Building inspection: $600-$800
• LIM report: $200-$400
• Valuation: $500-$1,000 (sometimes paid by lender)
• Home insurance: First year premium
• Moving costs: $500-$2,000

Total required savings: $125,000-$130,000 for a $600,000 property with 20% deposit

Many first-time buyers make the mistake of only saving the deposit amount, then scrambling to cover additional costs.

Strategies to Reduce Your Required LVR

1. Buy a New Build

New builds have favourable treatment under LVR rules:

• More lenders willing to offer 90% LVR
• Sometimes better low-equity margin rates
• May qualify for First Home Loan at 95% LVR

Example: Emma wants to buy but only has 10% deposit saved. Buying an existing home is challenging with limited bank allocation at 90% LVR. She purchases a new build townhouse and accesses 90% LVR lending more easily, with banks viewing new builds more favourably.

2. Use First Home Grant and KiwiSaver

Government grants and KiwiSaver withdrawals boost your deposit:

First Home Grant:

• Up to $5,000 (single) or $10,000 (couple)
• For existing properties meeting criteria
• Up to $10,000 (single) or $20,000 (couple) for new builds
• Subject to eligibility criteria (income caps, house price caps, residency requirements)
• Available through Kāinga Ora

KiwiSaver First Home Withdrawal:

• Withdraw your contributions minus $1,000
• Includes member tax credits received
• Both partners can withdraw if both are first-home buyers
• Can significantly boost deposit

3. Accept Family Assistance

Family gifted deposits are generally acceptable to lenders if properly documented.

Requirements:

• Must be genuine gift, not a loan requiring repayment
• Lawyer requires a deed of gift
• Some banks prefer you've saved at least 5% yourself
• Family member may need to sign documentation

Example: Tom has saved $40,000. His parents gift him $60,000, giving him a total $100,000 deposit (16.7%) for a $600,000 home. This avoids the 90% LVR challenges and reduces his low-equity margin.

4. Consider Guarantor Loans

Some lenders allow family guarantors to use their property as additional security, effectively reducing your LVR.

How it works:

• You have only 10% deposit
• Parents guarantee the shortfall using equity in their home
• Bank treats it as having 20% security overall
• You benefit from 80% LVR rates

Caution: Guarantor loans carry risks for guarantors. If you default, they're liable. Seek legal advice before proceeding.

5. Save More While Prices Are Flat

When property prices aren't rising quickly, taking time to save a larger deposit can pay off:

• Avoid low-equity margins
• Access better interest rates
• Have more lender options
• Stronger negotiating position with sellers

What Happens After You Buy?

Your LVR isn't static - it changes over time in two ways:

1. Paying Down Your Mortgage

Every repayment reduces your loan balance, gradually reducing your LVR.

Example:

• Start: $480,000 loan on $600,000 property = 80% LVR
• After 5 years: $445,000 loan on $600,000 property = 74% LVR
• After 10 years: $402,000 loan on $600,000 property = 67% LVR

2. Property Value Changes

If your property increases in value, your LVR decreases even without paying down your loan.

Example:

• Start: $480,000 loan on $600,000 property = 80% LVR
• Property value increases to $720,000
• Same loan: $480,000 on $720,000 property = 67% LVR

This is why property value growth is so powerful - it increases your equity without you doing anything.

Common LVR Mistakes First-Time Buyers Make

Mistake 1: Not Understanding Total Required Savings

Calculating deposit alone without factoring in purchase costs leaves you short when it's time to buy.

Solution: Add 4-6% of property value to your deposit target for costs.

Mistake 2: Assuming You Can Get High-LVR Lending

Just because 90% LVR loans exist doesn't mean you'll get one. Banks have limited allocation.

Solution: Aim for 20% deposit or ensure you're a strong applicant if relying on high-LVR lending.

Mistake 3: Not Shopping Around

Different banks have different LVR restrictions and low-equity margins. One bank might decline while another approves.

Solution: Use a mortgage adviser who accesses multiple lenders and understands each bank's LVR appetite.

Mistake 4: Buying at Maximum LVR in a Flat Market

If property values fall after you buy at 90% LVR, you could end up in negative equity (owing more than the property is worth).

Solution: Only buy at high LVR if you're confident in the property's value stability or growth.

Mistake 5: Not Planning to Remove Low-Equity Margin

Many buyers accept low-equity margins without a plan to remove them later.

Solution: Set a calendar reminder to request removal once you reach 80% LVR, whether through payments or revaluation.

Getting Expert Guidance

LVR rules, deposit requirements, and lending policies change regularly and vary significantly between lenders. What worked for your friend might not work for you, and what was available last year might have changed.

At Innovest, we:

• Stay current on all LVR rules and bank policies
• Know which banks have capacity for high-LVR lending
• Structure applications to maximize approval chances
• Identify strategies to reduce your required LVR
• Help you access first-home buyer schemes and grants
• Calculate your exact requirements including all costs
• Negotiate the lowest possible low-equity margins

Our service is free for borrowers - we're paid by lenders when your mortgage settles.

Your Next Steps

Understanding LVR is just the first step. Knowing how to position yourself for approval and minimize costs requires expertise and current market knowledge.

Book a free consultation with Innovest today. We'll:

• Calculate your exact deposit requirements
• Assess your LVR options based on your situation
• Identify the best path forward (including timing)
• Show you all available first-home buyer assistance
• Match you with lenders who will approve your situation
• Structure your application optimally
• Support you through the approval and purchase process

Don't let confusion about LVR delay your home ownership journey. Get clear, expert guidance today.