Reserve Bank of New Zealand's LVR restrictions

What are they and how do they affect you?

What does loan-to-value ratio (LVR) mean?

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

For example: If you are buying a home for $300,000 and you have $60,000 for a deposit; the remaining $240,000 you need to borrow to buy the home is 80 percent of the home's total value - making your LVR 80 percent. Example of calculation: ($300,000 - $60,000) / $300,000 = 80%).

What are the LVR restrictions on home loan borrowing?

The Reserve Bank of New Zealand (RBNZ) has placed restrictions on banks on the amount of low deposit lending they can do. The amount banks are allowed to lend varies on its intended purpose (such as for property investment).

Why are the LVR restrictions in place?

These changes are an effort by the RBNZ to reduce the impact that a significant drop in property values would have on the financial system and the broader economy.

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 our normal lending criteria. A low equity margin may apply.

Following a proposal by the RBNZ on LVR restrictions in July 2016, loans for residential investment properties generally require 40% equity; however a lower equity level may be possible. Talk to us for full details.

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. ASB will need to approve your loan before you commence building.
  • Refinancing your home loan to ASB - if you want to move your existing home loan to ASB and the value of the loan does not increase then the LVR restrictions may not apply.
  • 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.

There are conditions applying to each of the RBNZ exemptions so talk to us today to find out if your loan and circumstances qualify for an exemption from the LVR restrictions.

Home loans Reserve Bank of New Zealand's LVR restrictions