TL;DR
This article explains the key mortgage tests used in New Zealand: DTI (Debt-to-Income), LVR (Loan-to-Value Ratio), and UMI (Uncommitted Monthly Income). These tests are used by lenders to assess how much you can borrow and whether you can afford it. Understanding how each test works can help you prepare for the mortgage application process and improve your chances of approval.
What Are Mortgage Tests?
In New Zealand, mortgage lenders use financial stress tests to evaluate a borrower’s ability to repay a home loan. The three tests are the DTI, LVR, and UMI tests.
Key points:
Mortgage tests protect both borrowers and the financial system
Each test looks at a different aspect of financial health
The amount you can borrow will be dependent on your lowest result from each test
DTI (Debt-to-Income Ratio) Explained
The Debt-to-Income ratio measures the total amount of debt you hold compared to your gross annual income. It gives lenders a quick sense of how stretched your finances are.
For example, if you earn $100,000 a year and want to borrow $600,000, your DTI would be 6. You will need to factor in the debt you want to take out (your new mortgage) and existing debt you have. The Reserve Bank of New Zealand requires non-investors to have a maximum DTI of 6, investors can get up to a DTI of 7.
Key points:
DTI = Total debt ÷ Gross annual income
A DTI of 6 for non-investors or 7 for investors is usually acceptable
Higher DTI = higher lending risk in the eyes of banks
LVR (Loan-to-Value Ratio) Explained
The Loan-to-Value Ratio is the percentage of the property’s value you are borrowing. It directly affects how much deposit you’ll need.
For example, if you are buying a property worth $500,000 and want to borrow $400,000, your LVR is 80 percent. In New Zealand, current LVR rules mean that most owner-occupiers need at least a 20 percent deposit (LVR of 80 percent), and investors may need a 30 percent deposit (LVR of 70 percent). However, this is different when buying existing builds vs new builds. Use our mortgage calculator here to see the difference. A lower LVR is generally seen as lower risk by banks.
Key points:
LVR = Loan amount ÷ Property value × 100
Lower LVR = smaller loan, bigger deposit
Higher LVR loans are harder to get approved
UMI (Uncommitted Monthly Income) Explained
Uncommitted Monthly Income is a measure of how much money you have left each month after covering your committed expenses. It reflects your true monthly affordability and helps lenders assess whether you can comfortably manage mortgage repayments.
Banks calculate UMI by taking your net monthly income and subtracting your committed income, which includes obligations like rent, loan repayments, child support, and other fixed outgoings. If the result is a negative figure, your mortgage application will be declined. UMI calculations also account for higher hypothetical interest rates to test how resilient your finances would be if rates rise. Each bank has different requirements for UMI. Contact a Mortgage Broker for up-to-date information and assistance.
Key points:
UMI helps determine how much financial flexibility you have each month
Negative UMI indicates you may be overextended and unlikely to afford a mortgage
Committed income includes loans, rent, insurance, and other fixed expenses
Lenders stress test UMI using higher interest rate scenarios
Why These Mortgage Tests Matter
The DTI, LVR, and UMI tests are designed to protect both the borrower and the financial system. They prevent households from becoming over-leveraged and reduce the risk of default. For regulators like the Reserve Bank of New Zealand, these tests help keep the property market and banking system stable.
For borrowers, these tests influence how much you can borrow, the size of your deposit, and whether your application is approved at all. They can also vary depending on the type of property you’re buying, your income source, and your financial history.
Key points:
Mortgage tests reduce financial risk at both household and systemic levels
They affect how much you can borrow and how large your deposit needs to be
Test results vary based on borrower profile and property type
What This Means for Buyers in 2025
First-home buyers should ensure they have a sufficient deposit to meet LVR requirements and consider their income-to-debt ratio when budgeting. Property investors should be prepared for tighter lending conditions, especially as DTI limits are introduced. For self-employed or contract workers, it’s important to provide strong income evidence and maintain positive cash flow to pass UMI assessments.
Working with a mortgage broker can help you understand how these tests apply to your situation and what you can do to improve your profile.
Frequently Asked Questions
What is the UMI mortgage test?
The UMI (Uncommitted Monthly Income) test is a financial calculation used by NZ banks to determine how much of your income remains after all committed expenses are paid each month. It plays a key role in home loan affordability assessments. If your UMI is too low or negative, the bank may consider your mortgage application too risky, even if your deposit is strong.
How do New Zealand banks calculate DTI (Debt-to-Income) when assessing mortgage applications?
Banks in New Zealand calculate your DTI by dividing your total debt by your gross annual income. For example, if you earn $90,000 per year and have $450,000 in total debt, your DTI would be 5. A lower DTI (usually under 6) is seen more favorably and can increase your chances of mortgage approval. Higher DTIs may trigger stricter lending criteria or outright declines.
What is the Loan-to-Value Ratio (LVR) and what LVR limits apply to first-home buyers and investors?
The Loan-to-Value Ratio (LVR) is the percentage of a property’s value you are borrowing. In New Zealand, the Reserve Bank enforces LVR restrictions that typically require:
First-home buyers to have at least a 20% deposit (LVR of 80%)
Property investors are required to have at least a 30% deposit (LVR of 70%)
Can you still get a home loan in NZ if your DTI is high or your UMI is low?
It’s possible, but increasingly difficult. Borrowers with high DTIs or low UMIs may need to compensate with:
A larger deposit (lower LVR)
A guarantor or co-borrower
Banks also apply higher “stress test” interest rates when assessing your affordability, which can impact your calculated UMI even further.
What is considered a good DTI ratio in for home loan approval in?
A good DTI ratio in NZ is generally considered to be 6 or below. The Reserve Bank set a limit of 6 for non-investors and 7 for investors.
How do banks in NZ define and calculate ‘committed income’ when assessing UMI?
Committed income includes all recurring monthly obligations such as:
Car loans and personal loan repayments
Credit card minimum payments
Rent or board
Child support or alimony
Insurance premiums
Existing mortgage repayments (if refinancing or buying a second property)
Banks subtract this committed income from your net income to calculate your Uncommitted Monthly Income (UMI).
