Can You Use Equity to Buy an Investment Property in NZ?: A Guide to Growing Your Wealth Safely

Yes, you can. In New Zealand, if you have enough “usable equity” in your current home (the value above the 20% buffer required by banks), you can borrow against that equity to cover the entire deposit for an investment property. This means you do not need to provide any of your own cash. However, you must still prove to the lender that your income can support the combined mortgage repayments for both your home and the new rental property.

Generally, you need to keep 20% equity in your own home. For the investment property, NZ banks typically require a 30% to 35% deposit. Therefore, you need enough “usable equity” to cover that 30-35% of the new property’s price. If you are buying a “new build” investment, the deposit requirement is often lower, sometimes as low as 20%, which makes your equity go much further.

Using equity is a proven strategy for wealth building because it allows you to grow your assets without spending your cash savings. It is a good idea if the rental income covers a large portion of the mortgage and you have a financial buffer. It is important to work with specialists like Team Neet and Eddie Dhiman to ensure your debt is structured safely against market changes and interest rate fluctuations.

The main risk is that your total debt increases. If property values drop significantly or interest rates rise sharply, you could find yourself with high repayments. This is why “stress testing” your budget is essential. Another risk is “cross-collateralization,” where the bank links your home and investment property together. We often recommend keeping loans separate to protect your family home if things go wrong.

To find your usable equity, take the current market value of your home and multiply it by 0.80 (80%). Then, subtract your current mortgage balance from that number. The result is your “usable equity.” For example, if your home is worth $1 million, 80% is $800,000. If your mortgage is $500,000, you have $300,000 in usable equity that could potentially be used for an investment deposit.

Often, interest rates for investment properties are the same as owner-occupied rates, but the “fees” or “margins” might differ depending on your deposit size. If you have less than 20% equity, you might pay a Low Equity Premium. However, by using your home’s equity to provide a larger deposit, you can often access the lowest “special” interest rates available on the market.

Yes, if you already own a rental property that has gone up in value, you can use the equity in that property to buy another one. This is how many investors build a large portfolio. The rules are similar, though banks look closely at the total rental income of your entire portfolio to ensure you can afford the repayments across all properties.

As of current Reserve Bank of New Zealand (RBNZ) rules, the Loan-to-Value Ratio (LVR) for most existing investment properties is 70% (meaning a 30% deposit). For new construction (new builds), the LVR is often more flexible, allowing for a 20% deposit. These rules can change, so it is vital to check the latest requirements with a mortgage broker like Eddie Dhiman.

Generally, no. KiwiSaver is intended for purchasing your first home to live in, or for retirement. You cannot withdraw KiwiSaver funds to buy a rental property. This is why using home equity is so popular—it is often the only “pot of money” available to homeowners who want to start investing but cannot touch their retirement savings.

Yes, because you are increasing your borrowing and adding a new property, a lawyer will be needed to handle the mortgage documentation and the title transfer for the new property. They ensure the bank’s interests are registered correctly. We work alongside your legal team to make sure the transition from “homeowner” to “investor” is smooth and legally sound.