How do LVR restrictions impact house prices?

LVR restrictions do affect the market, but usually less than people think.

As property prices rise borrowers’ loans make up a smaller percentage of the property’s new (higher) value, so your LVR goes down.

So, as house prices rise, property owners can typically borrow more anyway.

That’s partly why when LVRs came back in (2021) they had little impact on house price inflation.

If we think back to when the Reserve Bank increased the deposit investors needed from 20% to 40%, the bank only expected LVRs to lower house price inflation 1-2%.

That doesn’t mean house prices alter by only 1-2%. 

It means that if house prices were going to go up 10% anyway, they now rise 8-9% instead.

Will the LVR rules ease again? An adviser’s view

Peter Norris, Managing Director at Opes Mortgages (BNZ Mortgage Adviser of the Year 2018, $1.2 billion-plus in lending facilitated), says:

“I think LVR restrictions are likely to ease at some point. If they do I expect the investor deposit requirement to move from 30% down to 25% before it ever goes back to 20%.

“That’s because LVRs are one of the Reserve Bank’s main tools for controlling risk in the housing market. 

“They can tighten them when the market is running hot, or loosen them when they want to stimulate lending again.” 

LVR exemptions – how can I buy with a lower deposit?

There are a few situations where low-deposit lending is still possible under the LVR rules.

#1 – New Builds

New Builds are the biggest exemption. The Reserve Bank’s LVR restrictions do not apply. So it’s up to the bank how much they are willing to lend.

This matters most for investors. In practice, an investor may only need a 20% deposit for a New Build instead of 30% for an existing property. 

On a $700,000 property that’s the difference between needing $140,000 and $210,000.

In some cases investors can purchase a New Build with as little as a 10% deposit through the major banks, although that often comes with paying a higher interest rate.

#2 – Speed limits

The Reserve Bank allows banks to do a limited amount of low-deposit lending outside the usual LVR rules.

From 1 December 2025:

• Up to 25% of each bank’s owner-occupier lending can be to borrowers with less than a 20% deposit
• Up to 10% of investor lending can be to borrowers with less than a 30% deposit. 

In practice, most of this low-deposit lending goes to first-home buyers.

#3 – Remediation exemptions

Banks can sometimes lend above the usual LVR limits if the extra borrowing is used to bring a property up to code.

That could be if a property needs a bigger mortgage to be repaired after it has been damaged (when a bank allows you to borrow more than the normal limit, so the property can be improved).

#4 – Bridging loans

Short-term bridging loans are also exempt. This is when a homeowner buys their next property before selling their current one.

Because bridging finance is temporary, the Reserve Bank does not treat it the same way as long-term lending.

#5 – Refinancing

If you refinance your mortgage to a new bank you are also exempt from the LVR restrictions. That’s as long as you are not increasing the size of the loan.

This means borrowers can still switch banks and shop around rather than being stuck with the same lender because of the LVR rules.

What about LVRs and First Home Loans?

Kāinga Ora First Home Loans allow eligible buyers to purchase with a 5% deposit (there are some income caps). You can only get the loan if you earn less than $95,000 a year as a single buyer, and $150,000 (combined) for a couple.

To be eligible you generally need at least a 5% deposit, be buying your first home, and meet those income caps set by Kāinga Ora.

This means eligible first-home buyers can still borrow at lower deposit amounts.

What can investors do if they don’t have a 30% deposit?

Peter Norris, Managing Director at Opes Mortgages (BNZ Mortgage Adviser of the Year 2018, $1.2 billion-plus in lending facilitated), says:

“If an investor does not have a 30% deposit that does not always mean they can’t invest. 

It might mean: 

• looking at a New Build, 
• seeing whether a bank can lend outside the standard LVR limits, or 
• asking whether a non-bank lender could be more flexible. 

“If none of those options suit, another route is to refinance (i.e. switch banks). 

“In some cases switching banks can help an investor release more equity or access a lender with a more flexible policy, which can make it easier to move forward with a purchase sooner.

“So, if you don’t have a 30% deposit, the answer is not always to ‘wait longer’. It may be the right property type, lender, or loan structure gives you another path into the market".

How long have LVRs been around?

LVR restrictions have been around since 2013.

But the important thing to know is that they don’t stay the same for long.

Since they were first introduced the Reserve Bank has loosened them, tightened them, and removed them altogether. Then they brought them back again.

For example, investor deposit requirements have been as high as 40% at some points, then reduced to 35%, and now sit at 30%. 

During Covid-19 LVR restrictions were removed altogether, although that didn’t last long. They were reintroduced less than a year later.

So while today’s rules matter, they are not permanent.

The Reserve Bank changes LVR restrictions depending on what is happening in the housing market and the wider economy. 

That means the deposit rules investors face today could look different again in the next 1–2 years.