When a bank says no, it is usually one of two rules doing the talking: LVR, which is about your deposit, or DTI, which is about your income.
LVR — loan to value ratio
LVR is your loan divided by the value of the property. A $600,000 loan on a $700,000 home is an LVR of about 86%, which means roughly a 14% deposit.
The Reserve Bank limits how much new lending banks may write above 80% LVR to owner-occupiers — currently a speed limit of around 20% of a bank's new lending. It is a limit on the bank, not a ban on you. It means high-LVR lending is rationed, so banks are pickier and price it higher.
- Above 80% LVR you will usually pay a low-equity margin or fee.
- Speed limits move: a bank that says no in March may say yes in June.
- First Home Loans are exempt from LVR restrictions entirely.
DTI — debt to income
DTI is your total debt divided by your gross annual household income. For owner-occupiers, banks are limited in how much lending they can write above a DTI of 6, with a speed limit of around 20% of new lending.
In practice: a household on $120,000 gross hits DTI 6 at $720,000 of total debt — and that includes any other debt you carry, not just the mortgage.
Your car loan is a house deposit
A $25,000 car loan can reduce your borrowing power by well over $100,000 once DTI and servicing tests are applied. Clearing consumer debt is often the fastest way to raise your limit.
The third rule nobody publishes: the test rate
On top of LVR and DTI, every bank applies its own servicing test — they check you could still pay if rates were two to three per cent higher than today's, and they apply a hefty assumed cost to any credit card or overdraft limit, whether or not you use it.
Reducing an unused credit card limit costs you nothing and can add tens of thousands to your borrowing capacity.
Which lever to pull
- Blocked by LVR? Grow the deposit, or look at a First Home Loan.
- Blocked by DTI? Clear consumer debt, or raise income (a documented pay rise, a boarder, a second borrower).
- Blocked by servicing? Cut card and overdraft limits, and clean up three months of statements.
The short version
- LVR is about deposit; DTI is about income; the test rate is about both.
- The speed limits restrict the bank, not you personally — shop around.
- Consumer debt and unused card limits cost you borrowing power.
- First Home Loans sit outside LVR and DTI limits.
General information for New Zealand first home buyers, not financial or legal advice. Rules and lender criteria change — check anything important with your solicitor, your lender or a mortgage adviser. Sources: Reserve Bank of New Zealand — LVR and DTI restrictions; Retail bank servicing criteria (typical, varies by lender).