What is Loan to Value Ratio (LVR) – and Why It Matters When Buying a Home

If you’re stepping into the property market, especially as a first-home buyer, you’ve probably come across the term Loan to Value Ratio (LVR).

It’s one of those phrases that gets used often but rarely explained properly.

Let’s break it down in a way that actually makes sense.

What is LVR?

Loan to Value Ratio (LVR) is the percentage of a property’s value that you’re borrowing from the bank.

In simple terms:
It compares your loan amount to the value of the property.

Example:

• Purchase price: $800,000
• Deposit: $160,000 (20%)
• Loan: $640,000

That means:

• You’re borrowing 80% of the property value
• Your LVR = 80%

Why Does LVR Matter?

From a bank’s perspective, LVR is a measure of risk.

• Lower LVR (bigger deposit) → Lower risk → Better terms
• Higher LVR (smaller deposit) → Higher risk → More restrictions

Banks use LVR to decide:

• Whether to approve your loan
• How much you can borrow
• What interest rate you’ll get
• Whether additional costs apply (like low equity margins)

The 80% Rule (and When It’s Flexible)

For most standard home loans in New Zealand:

• Banks prefer an LVR of 80% or lower (i.e. 20% deposit)

However, there are exceptions:

• Kāinga Ora First Home Loan (as low as 5% deposit)
• New builds (often more flexible)
• Strong income / low debt applicants
• Certain lender policies

But remember, with a higher LVR, you’d tend to have:

• Higher interest rates
• Stricter lending criteria
• Lower borrowing capacity

How LVR Impacts You

Your LVR isn’t just a number – it directly affects your position as a buyer.

1. Approval

Higher LVR = more hoops to jump to get approved but not impossible
Lower LVR = stronger application

2. Borrowing Power

A higher LVR can limit how much the bank is willing to lend you.

3. Interest Rates

If your LVR is above 80%, you may:

• Pay a low equity margin (higher rate)
• Have fewer lender options

The Common Misunderstanding

A lot of buyers think:

“If I can get the minimum deposit, I’m good to go.”

In reality:

• The structure of your deal matters just as much as the deposit
• Small changes in LVR can significantly impact your outcome

This is where good advice becomes critical.

Want a Simple Explanation? Watch Mils Muliaina Break It Down

If you prefer a quick, straight explanation, Mils Muliaina has covered this exact topic in a short video – walking through LVR with a real example.

It’s a great starting point before you dive deeper into your own situation.

Where Most People Get Stuck

• Not knowing how much deposit they actually need
• Thinking LVR is fixed (it’s not – strategy matters)
• Not understanding how it affects interest rates and approval

The Smart Move

Before you start house hunting, get clarity on:

• Your current LVR position
• What deposit you actually need
• How to structure your loan for the best outcome

Talk to the Right People

If you’re unsure where you sit or how to improve your position, speak to us at The Mortgage Hub.

We will:

• Break down your numbers clearly
• Explain your options
• Help structure your loan properly from the start

No jargon. No guesswork. Just clear advice.