Mortgages on investment properties

An investment property mortgage is different from a mortgage for your personal home. Banks view this type of lending as higher risk –therefore they attach different terms and requirements.

Investment properties can be residential or
commercial – we can help with both.

Keep in mind that investment properties can
include a holiday home/bach.

The deposit

With an investment property, you’ll normally require a higher deposit – at least 20% but generally in the region of 30%, sometimes more depending on the property.

You may require no deposit at all if you already own another property.

If you already own a home or another investment property, you may be able to use some of the equity in this property as a deposit on your new investment property. Equity is the difference between the value of your property and the amount you owe on it. For example if your house is worth $700,000 and you owe $300,000, then your equity is $400,000. You build up equity as you pay down your mortgage or if your property increases in value.

If you’re planning on buying your first home as an investment property and don’t intend to live in it, then you won’t be able to use your KiwiSaver savings.

Your ability to pay the mortgage

The bank will still want to know about your personal income and expenses. The higher your income, the greater your ability to withstand changes - e.g. not having tenants for a period or a significant increase in interest rates.

They will also factor in the potential rental income from the new property. However, be aware that the banks will always downgrade the expected rent.

Conditional approval

Getting conditional approval will give you an understanding of how much you can borrow – and therefore the value of the investment property you can purchase. Having conditional approval means you can move quickly and make an offer and therefore speed up the process for a full approval as you’ve already completed most of the bank’s requirements. Some additional info might be required for a full approval such as a property valuation or rental appraisal.

Loan Structures

Investment loans vary depending on your circumstances and what you’re trying to achieve. Your loan could be structured in the same way as a personal home loan, or be more complex to take advantage of tax, repayments and leverage. Having your finance structured incorrectly could adversely effect your return on investment significantly by thousands of dollars over the long term.

Interest on your personal home is not tax deductible, whereas interest on an investment property is deductible against the income earned from that investment. So it makes sense to pay down your home loan ahead of an investment property loan.

Many investors take advantage of interest only mortgages to reduce outgoings. However, most banks limit interest only mortgages to 5 or 10 years.

Interest rates on investment property can be different than for a home loan.

A couple of things to think about


Having a plan

Most successful property investors have a plan. It might start out as a home upgrade, where you keep your old home and rent it out; or you’re a determined property investor with the goal of a portfolio of 8-10 houses. Either way, you’re better off if you work out where you’re heading.



Leveraging means building up equity in one house, then using the equity to buy the next property and building up equity again. Then repeating. However, this strategy does require you to be comfortable with carrying high levels of debt.

Bright-line Test

Bright-line Test

The bright-line test is used to determine if you are required to pay tax on the profit If you buy and sell a residential investment property within a certain timeframe. Only one property is able to qualify as your main home. Any additional properties you own could be subject to the bright-line test when you sell.

Should I stick with the same lender as my home loan?

Achieving the right loan structure is the most important part – that may or may not be with your existing bank.

We’ll discuss this with you so you’re in the best position to make a decision about your situation.

Splitting debt across lenders can be smart – it gives you more control over the conversation with the lenders. In a booming market, when it’s easy to get loans, the bank will show you some flexibility. However, when conditions are tougher, don’t expect this same flexibility as lenders try to reduce their risk exposure.

Sometimes staying with the same bank can be advantageous as it is easier and often cheaper to leverage and the bank might be more competitive to keep you as a client. There is also a risk involved here if the bank you have everything with changes their rules.

Risks and returns from property investing

There are two types of returns: the return from renting or leasing the property and the long term increase in value (also called capital gain).

Short term there is often little or no return after expenses such as insurance, rates, mortgage repayments and maintenance. Generally people buy property to achieve capital gains over the long term.

Don’t forget to factor in your time when assessing a property investment. Looking for suitable properties, finding and managing tenants and organising maintenance.

Property is an illiquid asset – meaning it’s not easy to withdraw or sell your investment quickly. To get any money out, you may need to sell the whole property or increase the mortgage. This can be difficult and comes with additional costs. If you need to sell for whatever reason at a time when the property has decreased in value, you might be left still owing money to the bank.

If you have your home mortgage and investment property with the same bank, there is a risk that the bank could sell one or both properties if you are unable to make repayments.

Investing in property can be a great opportunity and we’re here to talk through your options and help you structure the finance to achieve the outcome you’re wanting.

Expert Mortgage Advice

Stuart Pope is our specialist Mortgage Adviser. Stuart has 20 years experience as a mortgage broker based in Nelson, and has both personal and professional experience building up property investment portfolios including residential and commercial properties.