The 2025 Mortgage Rule Reset: Understanding DTI, LVR, and Bright-Line Impacts

Between mid-2024 and late 2025, New Zealand’s mortgage landscape changed significantly. Debt-to-Income (DTI) limits, LVR easing, and ongoing bright-line tax rules have created a more complex borrowing environment. Advisers and borrowers must now plan across all three.

Key Changes

1. Debt-to-Income (DTI) Limits

From July 2024, banks must restrict high-DTI lending, meaning total mortgage debt cannot exceed a set multiple of income. The goal is to reduce excessive leverage.

2. LVR Adjustments

Earlier easing began in mid-2024, with a further relaxation effective December 2025. This allows more low-deposit lending within capped proportions.

3. Bright-Line Test

The bright-line rule still applies, taxing capital gains on residential property sold within a set period (currently 10 years for most properties). This heavily influences investor timing.

Combined Impact

Meeting LVR requirements does not guarantee DTI approval, and vice versa.

Borrowers who could once rely on equity alone now face income-based limits.

Rapid property price changes can alter effective LVRs, tightening credit after approval.

Investors must plan sale or refinance timing to avoid bright-line tax liabilities.

Strategic Guidance

1. Run a full regulation check. Evaluate each client against all three rules before structuring lending.

2. Encourage conservative gearing. Keep DTIs and LVRs below maximums to preserve flexibility.

3. Stage borrowing and sales. Avoid overlapping refinance or sale events that increase risk.

4. Prioritise liquidity. Maintain access to savings or credit buffers for volatility.

5. Educate clients. Many still assume deposit size is the main factor, which is no longer true.

The 2025 mortgage rule reset requires borrowers to think differently. Success now depends on aligning equity, income, and tax strategy, not just deposit savings. Those who plan proactively with trusted advice will remain well-positioned in the new lending environment.