DTI and LVR rules

DTI and LVR are easy to confuse because both cap borrowing, but they guard against different failures and they bind on different people.

LVR is about the bank's loss. If house prices fall and a borrower defaults, the bank recovers its money by selling the house. A borrower with a 20% deposit can absorb a 20% price fall before the bank is underwater; a borrower with 5% cannot. LVR limits are a buffer against the lender losing money, and they bind hardest on people with small deposits — typically first-home buyers.

DTI is about the borrower's ability to keep paying. A large deposit does not help if interest rates rise and the repayments become unaffordable. The 6× cap limits total debt relative to income regardless of how much equity is in the property, so it binds hardest on people buying expensive houses on modest incomes — which in practice means buyers in Auckland and Wellington rather than first-home buyers everywhere.

You have to satisfy both. Clearing the deposit hurdle tells you nothing about whether the income test passes, and this is where a lot of pre-approval disappointment comes from.

The DTI multiple sounds simple until you find out what goes into each side of it. On the debt side, everything counts — not just the new mortgage. Existing mortgages, car finance, personal loans, hire purchase, your student loan balance, and buy-now-pay-later arrangements all sit in the numerator.

Credit cards are the trap. It is the limit that counts, not the balance. A card with a $20,000 limit and nothing owing on it still consumes $20,000 of debt capacity, which at a 6× multiple costs you roughly $20,000 of borrowing power for no benefit whatsoever. Cancelling unused cards and reducing limits before applying is the cheapest borrowing-power increase available to most people, and it takes a phone call.

On the income side, banks apply their own judgement. Base salary is counted in full. Overtime, bonuses and commission are usually shaded — often to 50–80% — because they are not guaranteed. Rental income is typically discounted for vacancy and costs. Two lenders can therefore reach different DTI figures from identical paperwork, which is why shopping around genuinely matters.

This is the most widely misread part of both rules. Neither the DTI cap nor the LVR threshold forbids lending beyond the limit. Each allows banks to write a set share of new lending outside it — 20% of new lending above the DTI caps, and 25% of new owner-occupier lending above 80% LVR.

So a loan that breaches a limit is possible — it just has to compete for a scarce allocation. Banks ration that allocation to their strongest applicants, and how freely they release it varies month to month depending on how much of the quota they have already used. A borrower declined in one quarter can be approved in the next on identical numbers.

The Reserve Bank eased both LVR speed limits on 2025-12-01, reasoning that having DTI restrictions in place allowed LVR settings to be less restrictive. The high-LVR thresholds themselves did not change, and the DTI settings were left alone.

Two exemptions do real work for first-home buyers. New builds are exempt from both rules — a deliberate policy choice to avoid lending restrictions suppressing construction — so a new build can often be bought with a smaller deposit than an equivalent existing house.

Kāinga Ora First Home Loans are also exempt from both, which is what makes the 5% deposit route viable at all. The trade-offs, income caps and eligibility conditions are set out under first-home rules.

Beyond the exemptions, remember that these are floors rather than ceilings. The Reserve Bank sets the minimum restriction; every bank layers its own servicing test on top, typically stress-testing your repayments at an interest rate two to three percentage points above the rate you would actually pay. In a low-rate environment that internal test, not the DTI cap, is usually what limits you. Our borrowing range estimator models both constraints and shows which one binds first.