As at September 2026, an investor wants to buy a $600,000 rental property with a $150,000 deposit. Given the Reserve Bank's LVR restrictions for investors, what is the likely outcome?
Correct Answer
D) The investor needs about $30,000 more deposit to reach the 70% LVR limit
As at September 2026 investors generally need a 30% deposit (70% LVR). 30% of $600,000 is $180,000, so the $150,000 deposit is $30,000 short. At $150,000 the loan would be $450,000, a 75% LVR, which falls in the small restricted share of investor lending.
Why This Is the Correct Answer
As at September 2026 investors generally need a 30% deposit (70% LVR), with only a small share of bank lending allowed above that. 30% of $600,000 is $180,000, so the $150,000 deposit is $30,000 short.
Why the Other Options Are Wrong
Option A: It will be approved, because a 25% deposit meets the investor LVR requirement
A $150,000 deposit leaves a $450,000 loan, a 75% LVR, which is above the 70% investor limit.
Option B: It will be declined outright, because investors cannot borrow for rental property
Investors can borrow; they simply need a larger deposit, about 30%, to stay inside the restriction.
Option C: It will be approved at the same LVR, but only with a higher interest rate
LVR limits cannot be bought out with a higher rate; the loan would still fall in the restricted high-LVR share.
Deep Analysis of This Finance Question
The calculation: loan = $600,000 − $150,000 = $450,000; LVR = $450,000 ÷ $600,000 = 75%. The investor limit is 70% LVR, so the deposit needed is 30% × $600,000 = $180,000, and the shortfall is $30,000. The Reserve Bank adjusts these settings over time; the investor limit has ranged from 60% to 70% LVR in recent years, so always check the current figure.
Background Knowledge for Finance
The Reserve Bank's loan-to-value restrictions treat investors more strictly than owner-occupiers. As at September 2026 investor lending above 70% LVR is limited to a small share of each bank's new investor lending, and owner-occupier lending above 80% LVR to 25%. New builds are exempt from the restrictions.
Memory Technique
Investors need 30% down (70% LVR) as at September 2026. Multiply the price by 30%, subtract the deposit held, and the difference is the shortfall.
For investor LVR questions: price × 30% = deposit needed; deposit needed − deposit held = shortfall.
Exam Tip for Finance
Convert the percentages to dollars. Check whether the question is dated, because the investor LVR limit has changed several times.
Real World Application in Finance
An investor wants an $800,000 rental with $200,000 saved, a 75% LVR. At a 70% limit they need $240,000, so the adviser explains they are $40,000 short, or will need a lender with room in its restricted high-LVR share.
Common Mistakes to Avoid on Finance Questions
- •Confusing investor LVR requirements with owner-occupier requirements
- •Calculating LVR as deposit divided by property value instead of loan divided by property value
- •Assuming interest rate adjustments can compensate for LVR breaches
Related Topics & Key Terms
Key Terms:
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