Loan-to-value (LTV) ratios are very often used in home loan or mortgage lending to determine the minimum deposit amount required and whether a bank or lender will then extend credit or make a mortgage offer to a borrower. In layman’s terms it’s how much money you already need to have to borrow more.
Most banks or lenders in New Zealand offer mortgage and home-equity applicants the lowest possible interest rate (i.e. the best rate for you as a borrower) when the loan-to-value ratio is higher. Most of the New Zealand market is looking at or below 80% on a Loan-to-Value Ratio.
The rules and guiding principles behind LTV’s are set out by the Reserve Bank of New Zealand and they vary these rules from time to time dependent on market conditions.
The details of the current LVR restrictions in New Zealand, as set out by the Reserve Bank, are outlined below.
Property Investor Loan to Value Ratios – Property Investor loans.
Typically, a property investor will need to meet a 30% deposit level. The lender or bank then has flexibility to make this mower across just 5% of their investor lending.
LVR lending restrictions are much tighter for property investor mortgages due to the higher risks associated with this type of loan on the bank. The Reserve Bank of New Zealand’s current policy classifies investor loans as being of high Loan to Value Ratio if they are more than 70% of the property’s value. As mentioned above the rules also restrict higher LVR lending to no more than 5% of a bank’s total new investor lending. So a very small percentage.
First Time Buyer Loan to Value Ratios – First Time Buyer Mortgages.
There is no real difference for first time buyers versus other owner occupied loans. The mortgage will generally sit at a 20% Loan to Value ratio. Meaning a minimum of 20% deposit on a new mortgage. However, the banks and lenders do have more flexibility on owner occupied lending and can lend up to 20% of their total new lending at a lower than 20% LVR.
Owner Occupier Loan to Value Ratios – 20% deposit / 20% of owner occupier lending
This type of mortgage or loan is for borrowing secured against owner occupied property. The current policy classifies owner occupier loans as high-LVR if they are more than 80% of the property’s value, and restricts high-LVR lending to no more than 20% of a bank’s total new owner-occupier lending.
Loan to Value Ratios - Special cases
In New Zealand there are some exceptions relating to borrowing money on a mortgage to build a new home, for non-routine repair work (e.g. fixing leaky homes) on existing properties, bridging finance, refinancing of existing loans, moving a home loan from one property to another (provided the total value of the loan does not increase) and loans made under a scheme known as the Housing New Zealand Mortgage insurance scheme (this scheme also include Welcome Home Loans).
The NZ construction exemption applies on any home loan for a residential property purchase under the government’s Kiwibuild programme. Additionally, someone who is a borrower with owner occupied and investment property collateral can use the combined collateral exemption to obtain finance up to 70% of the value of the investment properties they are purchasing and 80% on their owner occupied property.
Need advice on Loan to Value Ratios?
If you need advice on LTV’s in New Zealand you can contact us here and Money Compare and we will provide you with expert advice from our partners at The Umbrella Company. The Umbrella Company is a specialist mortgage advisory who offer their services to consumers free of charge.