A first home buyer at an open home says, "With only a 15% deposit, the Reserve Bank rules make it illegal for any bank to lend to me." Which response is accurate under the Reserve Bank's loan-to-value ratio (LVR) restrictions?
Correct Answer
D) Banks may still lend above 80% LVR within a share of their new lending.
The Reserve Bank's LVR restrictions set a 'speed limit' on how much of a bank's new residential lending can go to borrowers with small deposits. From 1 December 2025 no more than 25% of a bank's new owner-occupier lending can have an LVR above 80%. A buyer with a 15% deposit is not barred; they compete for that share and must meet the bank's own criteria.
Why This Is the Correct Answer
The restriction caps the proportion of high-LVR loans a bank writes, so individual low-deposit loans remain possible.
Why the Other Options Are Wrong
Option A: Owner-occupiers must have at least a 20% deposit before any bank can lend.
LVR restrictions are a speed limit on a bank's overall new lending, not a minimum deposit that every borrower must meet.
Option B: The buyer needs a Reserve Bank exemption certificate before a bank will lend to them.
There is no individual exemption certificate; banks decide which borrowers fall within their permitted share of high-LVR lending.
Option C: Only investors are restricted, so owner-occupiers can borrow any amount.
Owner-occupier lending above 80% LVR is also restricted, to 25% of a bank's new owner-occupier lending from 1 December 2025.
Background Knowledge for Finance
Source: https://www.rbnz.govt.nz/regulation-and-supervision/oversight-of-banks/standards-and-requirements-for-banks/macroprudential-policy/loan-to-value-ratio-restrictions
Exam Tip for Finance
Think of LVR limits as a quota on each bank's lending book, not a rule applied to each borrower.
Common Mistakes to Avoid on Finance Questions
- •Treating the 80% threshold as a legal minimum 20% deposit for every owner-occupier.
More Finance Questions
What is the current standard LVR (Loan-to-Value Ratio) restriction for owner-occupier residential property purchases in New Zealand?
What is a key advantage of a revolving credit mortgage facility?
When assessing a mortgage application, which factor is typically given the highest priority by New Zealand lenders?
James has been contributing to KiwiSaver for 4 years and wants to withdraw funds for his first home. His KiwiSaver balance is $45,000, but $15,000 consists of government contributions and employer matching. What is the maximum he can withdraw for his house deposit?
What is the main advantage of a table mortgage compared to an interest-only mortgage?
- → What is the maximum amount a first home buyer can withdraw from their KiwiSaver account for a house deposit?
- → What does LVR stand for in New Zealand mortgage lending?
- → What is the key difference between a table mortgage and an interest-only mortgage in terms of monthly payments?
- → A bank checks how much of a borrower's gross income would go on debt repayments. The borrower earns $80,000 a year, already pays $800 a month on other debts, and the new mortgage would cost $2,200 a month. What share of gross income would the repayments take?
- → Sarah earns $80,000 annually and wants to borrow $400,000. What is her debt-to-income ratio?
- → A property is valued at $600,000 and the buyer has a $100,000 deposit. What LVR would this loan represent?
- → Which of the following is NOT typically considered by banks when assessing lending criteria?
- → How long must a KiwiSaver member have been contributing before they can withdraw funds for their first home?
- → Which type of mortgage allows borrowers to make additional payments that can be re-borrowed later?
- → A couple with a combined income of $120,000 wants to buy their first home for $650,000. They have a 15% deposit. What is their LVR?
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