Loan-to-Value Ratios: More Than Just a Number

Written By Kim Manunui

For anyone buying property, the Loan-to-Value Ratio, or LVR, is a number worth understanding.

Simply put, LVR measures how much you borrow compared with the value of the property. A home worth $1m with a $200k deposit and an $800k mortgage has an LVR of 80%.

LVRs are an important part of responsible lending. They provide a buffer between the amount owed and the value of the security, helping protect borrowers, lenders and the wider financial system when property prices fall.

The importance of that buffer became particularly clear during the Covid property boom. Record-low interest rates, strong demand and limited supply pushed house prices sharply higher, with some first-home buyers able to enter the market with deposits as low as 5%.

But markets move in both directions.

A buyer who purchased a $700,000 home with a 5% deposit borrowed around $665,000. If that property's value subsequently fell to $600,000, the owner could potentially owe $65,000 more than the property is worth.

That is negative equity — and it can create real problems if the owner needs to sell, refinance or move.

This is why LVRs are not simply another obstacle for borrowers. They are an important risk-management tool. A larger deposit generally means more equity, greater protection against falling property values and potentially more lending options.

Of course, LVR is only one part of responsible lending. Lenders also consider income, existing commitments, living expenses, the purpose of the borrowing, the property's suitability as security and the borrower's ability to service the debt.

The lesson from the Covid property cycle is straightforward: buying a property is about more than getting the keys. It is about ensuring the debt remains manageable when circumstances — and property values — change.

At Infinance, we look beyond the LVR to understand the bigger picture and structure lending around the borrower's circumstances and long-term position.

Contact us
Kim Manunui

Hi, I’m Kim and I work with a great team to help individuals, as well as small and not so small businesses get their message, product and services to the world using digital media and creating wonderful websites that don’t cost the earth.

I was born in Canada, and grew up around Vancouver and the mountains of British Columbia. My love of pristine environments led me to New Zealand and eventually to the mountains, lakes and rivers of the central North Island which is home. My family’s heritage is here, and it’s from here that Korio traverses the planet.

The digital world is never static and neither are we.

And I say ‘we’ because I work with an awesome group of talented people who I gather together as required to complete a project.  Whatever your business, not-for-profit or individual needs are we gather the best team to get the job done.

Collaboratively we are creative, share sustainable values and work hard for great outcomes because that’s the buzz of satisfaction that drives us.

If you have an audience and market to reach, we can make that happen. Creative design, words that work and smart behind the scenes stuff that cuts through the online noise. We’ll design your website and then build it. We’ll manage the content as well as all your hosting needs. We can handle your online advertising so you get noticed,
and we’ll manage your social media presence so you get the clicks, likes and engagement to grow your business. All within the budget you set, because none of this needs to cost the earth.  And the job doesn’t stop when your website goes live. We are your virtual business partner.

https://www.korio.co.nz
Next

Economic Outlook: Is 2027 Finally Our Year?