When it comes to buying a home, a 20% deposit is the magic number that banks love. It’s their comfort zone.
But if you’ve got less than 20%, don’t stress. You can still buy a place to live in. It just means you fall into what’s called High LVR (Loan-to-Value Ratio) lending, or what banks sometimes call low equity lending.
And with high LVR lending, a few things change.
Wait, what’s “LVR”?
Simple. LVR is just the percentage of the home’s value that you’re borrowing. So if you’ve got a 20% deposit, you’re borrowing 80% which means 80% LVR.
So what actually changes with high LVR lending?
- Pricing gets bumped up
You’ll likely pay a Low Equity Premium which is added to your interest rate. It varies between banks, but it’s roughly:
- 0.25-0.35% if your deposit is between 15–20%
- 0.60-0.70% if your deposit is between 10–15%
- Your affordability needs to be stronger
With a smaller deposit, banks use stricter affordability tests, which means you may be approved for a lower loan amount than you could if you had 20% or more deposit. - You may need a specific property to apply
With high LVR lending, banks often change whether they can offer a general pre-approval or not. More often than not, if pre-approvals are available, it’s only for existing customers which means you can only get this through your existing bank.
So if a pre-approval is not available, you’ll need to make an offer on a property (conditional on finance), have this accepted and countersigned, and provide the bank with a copy of the Sale & Purchase Agreement before they’ll assess your application.
Thinking about buying at auction? It’s trickier as you’ll probably need to get a valuation done upfront, which adds time and cost.
4. Not all banks are open for business
Because banks are restricted in how much high LVR lending they can do, sometimes they’ll pause high LVR lending altogether
This changes often and varies between lenders. That’s where working with an adviser (like us) makes life easier as we know the status on each lender.
5. A valuation is always required
Every high LVR application needs a registered valuation. That:
- Costs money: usually approx. $1,000 but can be higher
- Takes time: 5-7 working days is standard but can be done as urgent for an extra $250 with reduces the timeframe to 3-4 working days
- And if the valuation comes in lower than the purchase price, the bank will use that figure to assess your LVR which might mean you suddenly need a bigger deposit.
What about new builds?
Good news: new builds are treated differently.
The Reserve Bank allows more flexibility here, so banks can lend more freely on these homes. There’s less restrictions and pricing is the similar to when you have 20% deposit.
So if you’ve got less than 20% deposit and are open to building or buying new, it could be a smart way to get in.
Let’s make it easier
High LVR lending is very achievable and in fact very common for first home buyers. But it can be a bit of a maze.
We’ll guide you through it, handle the moving parts, and help you find a path that actually gets you into a home without wasting time or hitting brick walls.
