Blog Article

The Reserve Bank of New Zealand has announced welcome changes to lending rules that could make it easier for Kiwis to get onto the property ladder. From December 1st, 2025, banks will have more flexibility to lend to borrowers with smaller deposits. Here’s what you need to know.

What’s Changing?

The Reserve Bank has decided to relax the loan-to-value ratio (LVR) restrictions, giving Banks more room to help borrowers who don’t have large deposits saved up. This is particularly good news for first home buyers who have been struggling to save the traditional 20% deposit.

For New Owner-Occupiers

• Banks can now lend to 25% of borrowers with less than a 20% deposit (up from the current 20% limit)
• This means more people can qualify for loans with deposits as low as 10%

For New Property Investors

• Banks can now lend to 10% of investors with less than a 30% deposit (up from just 5%)
• This doubles the flexibility for investors looking to purchase rental properties

Why Is This Happening Now?

You might be wondering why the Reserve Bank has chosen this moment to ease restrictions. The answer lies in the introduction of debt-to-income (DTI) limits last year.

Acting Assistant Governor Angus McGregor explained that DTI restrictions now act as an effective “guardrail” against risky lending. These rules limit how much people can borrow based on their income, which helps ensure borrowers don’t take on more debt than they can realistically service.

With DTI restrictions in place to protect borrowers and the financial system, the Reserve Bank feels comfortable loosening the LVR restrictions. As McGregor noted, “House prices are within our range of sustainable estimates. Growth in mortgage lending remains moderate and the share of high-risk lending is low.”

What About Debt-to-Income Ratios?

The Reserve Bank reviewed the DTI restrictions alongside the LVR changes and decided to keep DTI settings unchanged. These limits remain calibrated to prevent high-risk lending during property market booms and periods of low interest rates.

This means that while it may be easier to get approved with a smaller deposit, you’ll still need to demonstrate that your income can comfortably service your mortgage repayments. This is actually a good thing, as it protects borrowers from taking on unmanageable debt.

What Does This Mean for You?

If You’re a First Home Buyer:

This is genuinely positive news. More banks will be able to offer you a mortgage even if you haven’t quite reached that 20% deposit threshold. While you’ll still face higher interest rates and likely need to pay for mortgage insurance with a low deposit, the door to home ownership just got a little wider.

If You’re a Property Investor:

The doubling of the speed limit for investor lending with deposits below 30% provides significantly more flexibility. However, remember that interest deductibility rules and other factors still apply, so it’s worth having a conversation about your specific situation.

IMPORTANT

These changes give banks permission to lend more flexibly, but they don’t require them to. Each bank will still assess your application based on their own lending criteria, your financial situation, and their appetite for risk. Good credit history, stable income, and responsible financial behavior remain crucial.

Looking Ahead

The new Financial Policy Committee will take over responsibility for reviewing LVR and DTI settings from next year. They’ll assess these restrictions at least annually and can adjust them if financial risks become elevated.

This new approach reflects the Reserve Bank’s confidence in New Zealand’s housing market stability and financial system resilience. It also signals a more balanced, pragmatic approach to lending restrictions that recognizes the different roles that LVR and DTI limits play in maintaining financial stability.

Next Steps

If you’ve been sitting on the sidelines waiting for the right time to enter the property market, these changes might be the opportunity you’ve been waiting for. However, buying a home is one of the biggest financial decisions you’ll make, and there’s a lot to consider beyond just the deposit size.

At The Mortgage Advice Company, we’re here to help you understand how these changes affect your specific situation. We can help you:

• Understand what deposit you’ll realistically need
• Navigate the different lending criteria across banks
• Structure your application to give you the best chance of approval
• Find the right mortgage product for your circumstances

The December 1st changes represent a meaningful shift in New Zealand’s lending landscape. Whether you’re a first home buyer finally ready to take the plunge, or an investor looking to expand your portfolio, now is a great time to have a conversation about your options.

READY TO EXPLORE WHAT’S RIGHT FOR YOU? Get in touch with our team at The Mortgage Advice Company. We’re here to turn these policy changes into practical opportunities for your financial future.

CALL 0800 622 422