Property valuation, security and loan-to-value ratio assessment
Domain 4 - Property valuation, security and loan-to-value ratio assessment
This domain tests how lenders establish the value and enforceability of security, and how LVR drives policy.
Core rules
- LVR = loan amount ÷ property value. Use the lender's acceptable valuation, not necessarily the purchase price.
- Valuation types include registered valuations, desktop or AVM and drive-by assessments; policy sets when a registered valuation is required for high LVR, unusual property, construction or related-party sales.
- RBNZ LVR restrictions impose speed limits on high-LVR lending; owner-occupier and investor thresholds differ, with new-build exemptions.
- Security must be properly documented: first mortgage, guarantees, cross-collateralisation and insurance.
- Fees capitalised into the loan increase LVR.
Worked example
Purchase price is $800,000; deposit $160,000; loan $640,000. LVR on price = 80%. The registered valuation comes in at $780,000 and the lender capitalises a $5,000 fee, so loan = $645,000 and LVR = 645,000 ÷ 780,000 = 82.7%. The loan now exceeds the 80% owner-occupier threshold and may require a low-equity premium, lender's mortgage insurance or a different structure. The assessor must use the lower acceptable value and include capitalised fees.
Traps
- Using purchase price when the valuation is lower.
- Forgetting that a second mortgage or guarantee affects the security position.
- Treating an AVM as a full valuation when policy requires a registered valuation.
- Ignoring RBNZ speed limits and new-build exemptions.
- Missing that fees and on-charged costs raise LVR.