Beginner's Guide to LVR Requirements in NZ

Your loan to value ratio determines how much deposit you need and whether you'll pay extra fees to borrow.

LVR is the size of your loan compared to the value of the property you're buying. An 80% LVR means you're borrowing 80% of the property's value and putting down a 20% deposit. Banks use this ratio to measure risk. The higher your LVR, the less equity you have in the property, and the more cautious lenders become about approving your application.

Wellington's housing market has seen plenty of first home buyers and upgraders working through LVR restrictions over the past few years. If you're buying in suburbs like Newtown, Karori, or Lower Hutt, understanding how LVR affects your borrowing options will save you time and help you plan your deposit properly.

How LVR Affects Your Deposit Requirement

Your LVR directly controls how much deposit you need to provide. If you're borrowing at 80% LVR, you need a 20% deposit plus settlement costs. At 90% LVR, you need 10% plus costs. At 95% LVR, you need 5% plus costs.

Most banks in New Zealand will lend up to 80% LVR without charging extra fees. Once you go above that threshold, you move into low equity lending, and a Low Equity Premium or low equity margin applies. Consider a buyer purchasing a home in Miramar at the current median. With a 10% deposit, they're borrowing at 90% LVR. The bank will likely approve the loan, but they'll add a Low Equity Premium to the interest rate, usually between 0.25% and 0.75% depending on the lender and your LVR. That extra margin stays in place until you reduce the loan below 80% LVR, either by making repayments or through property value growth.

What Counts as a Genuine Deposit

Banks want to see that your deposit comes from genuine savings, not borrowed funds. Savings held in your account for at least three months, KiwiSaver withdrawals, and gifts from family all count as genuine. Money borrowed from a personal loan or credit card does not.

If you're using KiwiSaver for your home loan, the full amount you withdraw counts toward your deposit. The same applies to a cash gift from parents or family, as long as it's documented properly with a statutory declaration confirming it's a gift and not a loan. In our experience, first home buyers in Wellington often combine KiwiSaver and family contributions to reach the 10% or 20% threshold, which keeps the LVR within a range most lenders will work with.

Low Equity Premiums and How They're Charged

A Low Equity Premium is an additional margin added to your interest rate when you borrow above 80% LVR. It's not a one-off fee. It's an ongoing cost that increases your monthly repayment until your LVR drops below 80%.

The premium varies by lender and LVR. At 85% LVR, you might pay an extra 0.25% per year. At 90% LVR, it could be 0.50%. At 95% LVR, it might reach 0.75% or higher. That might not sound like much, but over time it adds up. The premium disappears once your loan balance falls below 80% of the property's value, either through repayments or a valuation increase. Some borrowers in suburbs like Khandallah or Johnsonville have seen property values rise enough within two or three years to drop below the 80% threshold without refinancing.

Fixed Rate vs Floating Rate When Borrowing at High LVR

Choosing between a fixed rate mortgage and a floating rate mortgage matters more when you're paying a Low Equity Premium. Floating rates give you flexibility to make extra repayments without penalty, which helps you reduce your LVR faster. Fixed rates lock in your interest cost, but most fixed rate products limit how much extra you can pay off each year without incurring break fees.

If your goal is to drop below 80% LVR quickly and remove the Low Equity Premium, a floating rate or a split loan structure makes sense. You could fix part of the loan for stability and leave part floating so you can pay it down aggressively. As an example, a buyer in Tawa borrowing at 90% LVR might fix two-thirds of the loan on a 2 year fixed term and keep one-third floating. They can then direct bonuses, tax refunds, or regular extra payments toward the floating portion, bringing the overall LVR down faster without breaking a fixed rate contract.

LVR Restrictions and First Home Buyers

New Zealand banks face lending restrictions set by the Reserve Bank, which limit how much low equity lending they can do. These restrictions mean that even if you meet a bank's credit criteria, they might not have enough low equity lending capacity available to approve your application at 85% or 90% LVR.

These restrictions fluctuate depending on economic conditions and Reserve Bank policy. When restrictions tighten, some lenders stop offering loans above 80% LVR altogether, or they reserve low equity lending for certain buyer types like first home buyers. If you're looking to borrow at high LVR in Wellington, working with a mortgage broker gives you access to multiple lenders and improves your chances of finding one with available low equity capacity.

When Refinancing Changes Your LVR

Your LVR isn't fixed. It changes as you pay down your loan or as your property value moves. If you bought a home in Island Bay three years ago at 90% LVR and property values have increased while you've been making repayments, you might now be sitting at 75% LVR. That opens up refinancing options with lower rates and no Low Equity Premium.

Refinancing at a lower LVR also gives you access to better loan features like offset accounts, revolving credit, or the ability to make lump sum payments without restriction. Some lenders reserve these features for borrowers with at least 20% equity. If your LVR has dropped below 80%, it's worth reviewing your loan structure to see whether you can access better terms or remove the low equity margin you've been paying.

How Lenders Calculate LVR for Existing Homes vs New Builds

Lenders calculate LVR differently depending on whether you're buying an existing home or a new build. For an existing property, they use either the purchase price or a registered valuation, whichever is lower. For a new build or a property purchased off the plan, they often use the purchase price and may require progress valuations as construction advances.

This distinction matters in Wellington, where new developments in areas like Grenada Village or Porirua are common. If you're buying off the plan and the developer's price is higher than what a valuer assesses the property at on completion, the bank will calculate your LVR using the lower figure. That can push your LVR higher than expected and trigger a Low Equity Premium even if you thought you had enough deposit.

How Much Can You Borrow at Different LVRs

Your borrowing capacity depends on your income, expenses, and the LVR you're applying for. Most lenders will calculate your maximum borrowing amount using a debt servicing ratio, which compares your income to your proposed loan repayments, existing debts, and living costs. The higher your LVR, the stricter these calculations become.

At 80% LVR or below, lenders are more flexible with income assessment. At 90% LVR, they tighten the criteria and may reduce the amount they're willing to lend. At 95% LVR, only certain lenders will consider the application, and they'll apply the most conservative servicing tests. If you're trying to work out how much you can borrow at different LVR levels, a borrowing calculator gives you a rough estimate, but an actual pre-approval from a lender will give you the accurate figure based on your situation.

Call one of our team or book an appointment at a time that works for you to review your deposit, confirm your LVR, and find out which lenders are currently offering the most suitable terms for buyers in Wellington.

Frequently Asked Questions