LVR rules are loosening: What does this mean for borrowers?

The Reserve Bank has recently announced changes to New Zealand’s loan-to-value ratio (LVR) restrictions: the rules that limit how much low-deposit lending banks can do.

These adjustments are intended to give lenders a little more flexibility, particularly for first-home buyers and others who’ve been working hard to save. But they don’t mean the lending floodgates have opened.

Here’s what’s changing, why it matters, and how a financial adviser can help you make sense of it all.

What’s changing

An LVR (loan-to-value ratio) compares the size of your home loan to the value of your property.

As an example, if you buy a $600,000 home with a $480,000 mortgage, your LVR is 80%.

Since 2013, the Reserve Bank of New Zealand (RBNZ) has used LVR “speed limits” to help ensure the financial system remains resilient, especially during housing booms. These limits cap the proportion of high-LVR loans each bank can approve.

From 1 July 2024, those caps were eased:

• Owner-occupiers: Banks can now lend up to 20 percent of new loans to borrowers with less than a 20 percent deposit (up from 15 percent).
• Investors: Banks can lend up to 5 percent of new loans to borrowers with less than a 30 percent deposit (previously 5 percent above 65 percent LVR).

And from 1 December 2025, the Reserve Bank is making a further adjustment:

• Owner-occupiers: Banks will be able to lend up to 25% of new loans to borrowers with less than a 20 percent deposit.
• Investors: Banks will be able to lend up to 10 percent of new loans to borrowers with less than a 30 percent deposit.

These changes coincide with the introduction of new debt-to-income (DTI) restrictions – another tool that helps manage housing market risk.

What this means in practice

The easing doesn’t guarantee approval for low-deposit borrowers. Each lender still applies its own criteria and stress tests.

Even if you meet the new LVR threshold, the DTI settings, which compare total debt to income, could be a key hurdle. Lenders will continue to look closely at your income stability, regular expenses, and any existing debts before approving finance.

In other words, the Reserve Bank has made it possible for more low-deposit loans to be approved, but it doesn’t mean that this will happen automatically.

What it means for first-home buyers

First-home buyers are among the groups most likely to benefit from the LVR easing.

Potential advantages: 

• Banks have more headroom to consider applicants with deposits between 10 and 20 percent.
• A consistent savings record and stable income may carry more weight now that lenders can be a bit more flexible.
• Some borrowers may be able to enter the market sooner than they expected.

Points to watch:

• A smaller deposit increases the size of your loan and the impact of future rate rises.
• You’ll still need to meet the lender’s affordability tests, which factor in living costs and potential rate changes.
• Lenders may still charge a margin or require additional conditions for high-LVR loans.

Focus on affordability

Whether you’re buying your first home or adding to your portfolio, the fundamentals haven’t changed:

• Keep a clear record of income and spending.
• Manage short-term debt carefully.
• Build in buffers for rate changes, maintenance, and other property costs.
• Be realistic about what you can comfortably repay, not just what you can technically borrow.
• You can explore your numbers with independent tools like Sorted’s mortgage calculator, but remember, online tools can only give general estimates.

How professional advice can help

Because every lender has their own policies within the requirements, getting advice can make a real difference. A mortgage adviser can help you compare how different lenders, treat high-LVR applications, review your budget and debt-to-income position before you apply, identify whether it’s better to wait and build a larger deposit or apply sooner, and ensure your borrowing plan remains sustainable if interest rates or your circumstances change.

Where to from here?

The Reserve Bank’s move to ease LVR restrictions is a positive signal for borrowers, especially first-home buyers with smaller deposits. But it’s not a shortcut.

Careful preparation, sound budgeting and good advice still make the biggest difference. If you’re planning a property move, or just want to understand what the new rules mean for you, talking with a mortgage adviser is a great place to start.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.