At the end of last year, the Reserve Bank of New Zealand eased the LVR settings, making it easier to secure a low deposit loan. However, if you’ve only got a small deposit, it’s likely you’ll have to pay more for your mortgage in the form of a low equity premium (LEP).
Canstar reveals what home buyers with low deposits need to know about LEPs.
In this article, we cover:
Low deposit home loans and the LVRs
Banks will happily lend to home buyers who have at least a 20% deposit. However, lending to borrowers with smaller deposits are subject to the Reserve Bank of New Zealand’s (RBNZ) loan-to-value ratio (LVR) restrictions.
An LVR refers to the size of a loan compared to the value of the property it’s used to purchase. For example, if you buy a home worth $1 million with a $300,000 deposit and a $700,000 mortgage, this means 30% is coming from you, and 70% from the bank, which is an LVR of 70%.
Because low deposit mortgages come with greater risks for banks, the RBNZ sets limits on banks’ low deposit lending. At the end of last year, the RBNZ increased the amount of low deposit lending banks are able to make:
- 25% of owner-occupier lending to borrowers with an LVR greater than 80% (up from 20%)
- 10% of investor lending to borrowers with an LVR greater than 70% (up from 5%)
However, because borrowers with small deposits are considered a greater risk, banks usually charge them more for their mortgages.
Borrowers with small deposits usually get charged higher interest rates, or they have to pay a low equity premium (LEP).
What is a low equity premium?
An LEP is an extra interest rate on top of a lender’s standard rate for borrowers with at least 20% equity in their homes. Currently LEPs range from an extra 0.25% to 1.5% p.a.
What low equity premiums do the banks charge?
For those with less than a 20% deposit, four of the banks listed below charge LEPs as annual extra interest charges, which, as you can see, can add up to an extra 1.75% p.a. Other lenders simple offer higher standard rates to low-deposit lenders.
ANZ
ANZ doesn’t charge a low equity premium, instead it charges higher standard interest rates (about 60bps) for those with less than a 20% deposit.
ASB
ASB’s low equity premiums:
- 80.01% – 85% LVR: 0.30% of loan amount p.a.
- 85.01% – 90% LVR: 0.75% p.a.
- 90.01% – 95% LVR: 1.30% p.a.
- Over 95% LVR: 1.50% p.a.
BNZ
BNZ’s low equity premiums:
- 80.01% – 85% LVR: 0.35% of loan amount p.a.
- 85.01% – 90% LVR: 0.75% p.a.
- 90.01% – 95% LVR: 1.20% p.a.
- Over 95% LVR: 1.50% p.a.
Kiwibank
Kiwibank doesn’t charge a low equity premium, instead it charges higher standard interest rates (about 70-90bps) for those with less than a 20% deposit.
SBS Bank
SBS doesn’t charge a low equity premium, instead it charges higher standard interest rates (about 60bps) for those with less than a 20% deposit.
The Co-operative Bank
The Co-operative Bank charges a low equity premium of between 0.20-1.00% p.a. on top of its standard rates for borrowers with less than a 20% deposit.
TSB
TSB doesn’t charge a low equity premium, instead it charges higher standard interest rates (about 80bps) for those with less than a 20% deposit.
Westpac
Westpac’s low equity premiums:
- 80.01% – 85% LVR: 0.25% of loan amount p.a.
- 85.01% – 90% LVR: 0.75% p.a.
- 90.01% – 95% LVR: 1.50% p.a.
- Over 95% LVR: 1.75% p.a.
(Rates correct at 24/06/2026)
Low equity premiums disappear over time
Yes, if you’ve less than a 20% deposit, it’s likely you’ll have to pay more for your mortgage. However, it isn’t all bad news.
As you pay off your loan and your property (hopefully) rises in value, your equity in the property should rise. This means that when you come to refinance your loan, you might not have to continue paying extra for having less than 20% equity.
However, banks don’t proactively revise your LEP unless you contact them and ask for a re-evaluation of the value of your home. So it pays to keep a close eye on house prices in your area and the size of your debt.
Ultimately, if you’re looking for the cheapest home loan, it pays to compare the different mortgage products on the market. And that’s something Canstar can help you with …
Cheapest Home Loan Rates for First Home Buyers
The table below displays some of the 1-year fixed-rate home loans on our database (some may have links to lenders’ websites) that are available for first home buyers. This table is sorted by current interest rates (lowest to highest), followed by company name (alphabetical). Products shown are principal and interest home loans available for a loan amount of $500K in Auckland. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products. Canstar may earn a fee for referrals.
Compare Cheapest Home Loan Rates for First Home Buyers
About the author of this page
This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.
Share this article