Loan-to-valuation ratio restrictions

Temporary limits on high loan-to-value ratio (LVR) residential mortgage lending have been in place since October 2013, and were revised in November 2015 and October 2016.

Compared to the limits applying prior to 1 October 2016, LVR lending restrictions are tighter for loans secured by investment property and slightly tighter for non-Auckland owner occupied property. LVR restrictions have not changed for owner occupier loans in Auckland. This tightening is in response to the growing housing market risks nationwide. The new nationwide high LVR limit categories for owner occupied and investor loans replace the previous three restriction categories that were defined by the combination of region and borrower type.

As a result of these changes, banks’ mortgage lending is placed into one of the following classifications of LVR restriction.

Investor loans – 40% deposit / 5% of investor lending

LVR lending restrictions are tighter for loans secured by investment property in response to the growing housing market risks associated with this borrower type. Low-deposit (high-LVR) loans in this category are those loans that are more than 60% of the property’s value (40% deposit). High-LVR loans can make up no more than 5% of a bank’s total new lending in this category.

Owner occupier loans – 20% deposit / 10% of owner occupier lending

This class of loan is for borrowing secured against owner occupied property. Low-deposit (high-LVR) loans are defined as those loans that are more than 80% of the property’s value (20% deposit). These loans can make up no more than 10% of a bank’s total new lending in this category.

Special cases

There are some exemptions relating to borrowing to build a new home, for non-routine repair work (e.g. fixing leaky homes) on existing properties, bridging finance, refinancing of existing loans, shifting loans from one property to another (provided the total value of the loan does not increase) and loans made under the Housing New Zealand Mortgage insurance scheme (including Welcome Home Loans). In addition, borrowers with owner occupied and investment property collateral can use the combined collateral exemption to obtain finance up to 60% of the value of the investment properties and 80% on their owner occupied property.

Please note: LVR restrictions apply to new high-LVR loans, and not retrospectively to existing loans. Existing borrowers are only affected if they want to take out a ‘top up’ loan. Banks will still apply their own lending criteria to individual borrowers and may choose to not provide finance in certain circumstances or to provide it only at lower LVRs.

Key resources

News and updates

LVR consultation history

In September 2016, the Reserve Bank published a response to submissions (PDF 1 MB) on changes to the Loan to Value Ratio restriction rules (LVRs). The changes were reflected in an updated version of BS19 of the Banking Supervision Handbook (PDF 174 KB).

In July 2016, the Reserve Bank published a consultation paper (PDF 1.2 MB) on further adjustments to the LVR policy. 

In August 2015, the Reserve Bank finalised changes to the capital adequacy requirements for residential mortgage loans for investment properties. This included defining owner-occupied property for the purposes of new LVR restrictions (PDF 70KB).

In August 2015, the Reserve Bank published a response to submissions on changes to the Loan to Value Ratio restriction rules (LVRs). The Reserve Bank also released a Regulatory Impact Assessment as part of the response to submissions. The changes were reflected in an updated version of BS19 of the Banking Supervision Handbook (PDF 1.2MB).

In June 2015, the Reserve Bank published a consultation paper on proposed changes to the LVR policy (PDF 1.37MB) (amended 4 June), including tighter restrictions on Auckland investor lending.

In March 2014, the Reserve Bank responded to submissions on the construction exemption (PDF 126KB) in BS19 (PDF 252KB) and finalised the exemption. The Reserve Bank also consulted on some minor changes to BS2A/BS2B that required minor consequential changes to BS19 (PDF 150KB). These were finalised in June 2014 (PDF 170KB).

In December 2013, the Reserve Bank announced it would introduce an exemption for high-LVR construction lending. Questions and Answers about the construction lending exemption (PDF 101KB) were also released. A related consultation paper (PDF 129KB) and draft of BS19 (PDF 301KB) were released on 20 December 2013.

In October 2013, the Reserve Bank released documents relating to the development and implementation of restrictions on high-LVR mortgage lending.

In August 2013, the Reserve Bank announced its intention to implement restrictions on high loan-to-value ratio (LVR) lending. From 1 October 2013, banks must restrict new residential mortgage lending at LVRs over 80 percent (a deposit of less than 20 percent) to no more than 10 percent of the dollar value of their total new residential mortgage lending. The Reserve Bank also released a Regulatory Impact Assessment (PDF 681KB) of this policy.

In August 2013, the Reserve Bank published its Response to Submissions (PDF 245KB) and revised "Framework for restrictions on high-LVR residential mortgage lending" (BS19) (PDF 252KB) and "Statement of Principles" (BS1) (PDF 242KB). The Reserve Bank’s final framework for the operation of LVR restrictions following consultation.

In June 2013, the Reserve Bank released a technical consultation package relating to restrictions on high loan-to-value ratio (LVR) residential mortgage lending. This package included a consultation paper (PDF 189KB), and proposed changes to the Banking Supervision Handbook and banks’ conditions of registration, set out in the draft "Framework for restrictions on high-LVR residential mortgage lending" (BS19) (PDF 193KB). It also included draft changes to the "Statement of Principles" (BS1) (PDF 689KB).