What is LVR and how does it affect me?

What is LVR?

LVR stands for Loan-to-Value ratio. The amount of your loan and how much you intend on borrowing compared to the value of your property. It is calculated by dividing the amount of the loan by the value of the property.

For example, an LVR of 80% means you are borrowing 80% of the value of your home. Or in real terms if the property is valued at $400,000 and you have a deposit of $80,000, the Loan to Value ratio will be 80%.

80% is generally used as the barometer for measuring LVR. A high LVR generally means someone is borrowing greater than 80% of the value of the property. Using the same figures; if a $40,000 deposit is available on the home valued at $400,000 this would equate to a high LVR, of 90%.

Likewise if a $100,000 deposit was made and $300,000 borrowed, the LVR would be lower, at 75%.


What does this mean for me?

The LVR is used as a measure of your risk as a borrower. Lenders will calculate your LVR as one of the key determinants before deciding upon whether your home loan will be approved or not.

The general rule is that you need a 20% minimum deposit before applying for the remainder.

Generally speaking, the lower your LVR is, the better the home loan rate your mortgage provider can offer.  This is because the higher your deposit amount is, also known as equity value, the less likely you are to default or fail on mortgage payments.


Enforcement of LVR Restrictions

LVR restrictions are controlled by The Reserve Bank of New Zealand. For more information on LVR restrictions and their impact on the New Zealand property market click here.