Low Equity Margins (LEM) in New Zealand: What You Need to Know

Got less than a 20% deposit? You can still get a home loan in New Zealand – but most banks will apply a Low Equity Margin (LEM) to your interest rate. Understanding how it works could save you thousands.

What is a Low Equity Margin?

A Low Equity Margin is an additional charge applied by the bank when your deposit is under 20% of the purchase price. In simple terms, the bank sees borrowers with smaller deposits as higher risk, so they add a premium to your interest rate.

The size of the margin depends on how much equity you have. The closer you are to a 20% deposit, the smaller the margin might be (often around 0.25%). But if your deposit is much lower – say 10% or even 5% – the margin could be much higher, sometimes up to 0.75% or more.

Think of it as the bank’s way of saying: “We’ll lend you the money, but because your deposit is lower, we need a buffer.”

What Does That Mean in Real Numbers?

Let’s put it into perspective.

Say you’re approved for an interest rate of 4.79%, but because you only have a 10% deposit, the bank applies a 0.75% Low Equity Margin. That means your actual rate is 5.54%.

On a $600,000 loan, your repayments would be about $789 per week, compared to $725 per week without the margin. That’s an extra $64 every single week – or more than $3,000 a year.

The Good News

The extra cost isn’t forever. Once your loan balance drops below 80% of the property’s value – either by paying
down your mortgage or if your home increases in value – you can usually request the bank to review or remove the margin. Often, this involves ordering a property valuation to prove the new loan-to-value ratio.

Why This Matters in New Zealand

In New Zealand, the Reserve Bank has rules (called LVR restrictions) that limit how many low-deposit loans banks can offer. Because of that, different banks treat Low Equity Margins differently – some might be stricter, while others are more flexible. Knowing which bank to approach can make a big difference to both your approval chances and your weekly repayments.

How The Mortgage Hub Helps

At The Mortgage Hub, we do more than just get you a loan. We:

• Compare lenders to see how each applies Low Equity Margins.


• Explain how the margin affects your repayments so you’re not caught by surprise.


• Structure your loan to help you get out of the “low equity” category faster, so you can drop the margin sooner.

Our job is to save you money, reduce stress, and help you into a home sooner.

A Low Equity Margin doesn’t mean you can’t buy a home – it just means the bank adds a cost for now. With the right strategy, you can reduce or remove it and avoid paying more than you need to.

At The Mortgage Hub, our advice is free – and it could save you thousands. If you’re buying with less than a 20% deposit, talk to us first.

Check out our video here for a quick overview of how Low Equity Margins work and how we can help you manage them.