Understanding different loan to value ratios
Loan to valuation ratio, commonly known as loan to value ratio (LVR), is the amount of your loan compared to the value of your property.
LVR is calculated by dividing the amount of the loan by the value of the property. For example, if the property is worth $250,000 and you have a deposit of $50,000, the LVR will be 80%. ($250,000-$50,000)÷$250,000 = 80%.
First home buyers
Deposit of 20% or more
If you want to buy your first home as an owner-occupier, and have a deposit of at least 20%, i.e. an LVR of 80% or less, there may be no impact on your home loan application.
Deposit of less than 20%
If your deposit is less than 20% of the home’s value, your loan application will be affected by the LVR restrictions imposed by the Reserve Bank of New Zealand.
The restrictions mean that only 20% of our new lending for owner-occupied residential housing (new home loans) can have an LVR of more than 80% (a 20% deposit or less). Therefore, your application will have to undergo a number of assessments to see if we are able to give you the loan or not, to ensure that we comply with these restrictions.
Low equity premium (LEP)
If your deposit is less than 20% of the home’s value, a low equity interest rate premium will apply. This is charged to recover some of the additional cost to the bank of lending to customers with a smaller deposit.
You can view details on our home loan interest rates and fees page
Residential property investors
Following lending restrictions introduced by the Reserve Bank of New Zealand, you’ll need a minimum deposit of 30% to apply for a residential investor loan, unless your loan falls within an exemption.
These restrictions apply to new applications and/or top-ups. Applications for lending against owner-occupied property are also impacted if there is a residential investment property in the lending mix. Exemptions may apply such as if you are refinancing from another bank, or if your house is under construction. If you’d like to find out more, call us on 0800 275 269.
How LVR impacts existing home loan customers
Topping up an existing home loan
You can apply to borrow more funds on top of your existing home loan. We’ll assess your application to check that we can accommodate the new loan amount, and that your new LVR meets the restrictions.^
Moving to a new home
If you're moving to a new home, you should be able to take your home loan with you. As long as you plan to live in the new property, as your main place of residence, you're not likely to be affected by the LVR restrictions.
You may not be able to move your loan if you want to increase the amount of your loan and the increase makes your LVR more than 80%. In this case, your application will be affected by the LVR rules.
LVR exemptions for new housing
Under some circumstances there are exemptions to LVR restrictions. Where a loan falls under an exemption, the loan is not included in the banks’ lending quota.
These exemptions include lending (including increases of existing loans) to finance the build of a new house or apartment.