How much deposit do you need for an investment property in NZ?
The process to buying an investment property is fairly similar to buying an owner-occupied property. One of the clear differences between these lending processes is the required deposit.
When applying for lending on an investment property, a minimum of 30% deposit is required vs 20% for an owner-occupied. When sourcing finance for standard residential investment property purposes the bank’s as a general rule will lend to 70% of the properties market value.
An investment property deposit can come from the following places:
Existing Equity – Depending on the equity held in your owner-occupied property you may be able to use these funds as the deposit for your new standard residential investment property. In this instance you would evidence to the bank that you have the 30% deposit held in equity but you would still require lending of the full purchase price as your equity isn’t money that you can draw on as such.
How to work out your equity position:
Example: You have an owner-occupied home valued at $900,000 with a home loan of $400,000.
You wish to purchase a standard residential investment property for $600,000 but you’re unsure of your equity to secure the new home loan. Here’s an equation to work this out:
Owner occupied home value $900,000 @ 80% LVR (Loan to value ratio) = $720,000 less existing home loan of $400,000 = $320,000 spare equity.
Standard Residential Investment property value $600,000 @ 30% LVR deposit / equity required = $180,000
Result = Owner occupied property has sufficient equity to secure a full lend on a standard residential investment property with no further deposit funds required to add to the equation.*
*Please note lending is always subject to the lenders terms & conditions and servicing policy applies.
Savings – Putting away savings from your income regularly not only grows your deposit but also demonstrates to the bank that you have the ability to save while managing your existing home loan repayments.
Gifted funds – Family members can gift you a sum of money that helps with any shortfall you may have with your deposit funds. The bank will require a gifted letter confirming these funds.
Guarantees – A family member can provide a guarantee over your loan if you have little or no deposit. This allows them to use their equity without having to provide any money upfront. However, if you fail to make a repayment your guarantor is then liable.
Once you can confirm you have a 30% deposit requirement for a standard residential investment property purchase, you will need to apply for a home loan pre-approval where the lender will assess your full financial statement of position as part of their debt servicing assessment process.
If you’d like to get in touch to learn about your lending options, feel free to book an appointment with one of our mortgage advisers. You can also subscribe to our monthly newsletters where we provide information on the latest housing market updates.
Looking forward to hearing from you soon.
Fiona & Amy
NZ Mortgage Advice.
