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Reserve Bank’s loan-to-value restrictions are back

RBNZ is bringing back LVRs, or loan-to-value ratios, after a suspension period due to the pandemic. In short, Reserve Bank-enforced LVRs restrict the amount that banks can loan to low-deposit borrowers. Starting 1 March 2021, banks can have only 20 per cent of all new lending go to owner-occupiers with less than a 20 per cent deposit. Plus, only 5 per cent of all new lending can be made available to property investors with less than a 30 per cent deposit, which will become 40 per cent from 1 May 2021.

What do LVRs mean for you?

Generally speaking, the larger the down payment you can make, the lower your mortgage amount will be – and the lower your loan-to-value ratio will be. From a bank’s perspective, a lower LVR carries less risk, and it also means good news for the borrower, as they have more equity in their property right from the start.

It’s important to keep in mind that LVRs aren’t the only factor that banks look at when assessing a mortgage application. The borrower also needs to prove that they are on solid financial footing and capable of meeting the terms of the loan.

Plus, even if your LVR is higher than 80 per cent (as an owner-occupier) or 70 per cent (as an investor), you may still be able to apply for a mortgage, provided your financial situation allows it. Having said that, there may be added costs you’ll need to consider, plus the interest rate may be higher than those advertised. Get in touch to learn more.

Will LVRs slow down property prices?

According to research, before LVRs were paused in 2020, the increase in property prices was slower. But in 2020, while they were absent, property prices rose by almost 13 per cent. After the restrictions were removed, property investors swarmed the market and borrowed 57 per cent more in November 2020 as compared to 2019.

How will Reserve Bank-enforced LVRs change this? Economists and property market experts believe that investor demand will slow, especially after the 40 per cent requirement kicks in. But according to CoreLogic’s Kelvin Davidson and Nick Goodall, among others, the impact is likely to be limited for owner-occupiers, as banks had been generally applying a 20 per cent deposit rule anyway. Plus, Reserve Bank mandated LVRs don’t apply to non-bank lenders, so the return of the restrictions may not slow the prices as much either.

Looking to enter the property market?

As financial advisers, we’re here to help you with all your financial needs. We can help you make an informed decision about your financial planning, and answer any questions you may have about buying your first home. Get in touch with us, today.


CIC Financial Limited holds a licence issued by the Financial Markets Authority (FMA) to provide financial advice. Please visit our website at for more information and our Disclosure information.

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