Using Equity to Buy a Second Property in New Zealand: A Complete Guide

When building wealth through real estate investing, one of the most powerful tools is the equity in your current home. Leveraging home equity may allow you to invest in another property and effectively grow your investment portfolio.

This guide will walk you through how to use equity to buy a second property, covering mortgages, loan-to-value ratios, taking on extra debt, and how to minimise risk in your investment strategy.

What is Home Equity?

Equity refers to the difference between your property’s market value and the remaining amount you owe on your home loan. Equity increases over time as you pay your mortgage down or your property value appreciates. Think of it as the actual “ownership” portion of your property that you could potentially turn into cash.

Let’s consider this scenario:

• The current value of your property: $750,000

• Your current home loan balance: $500,000

• LVR for your home: 80%

• LVR for the next property: 70%

The bank’s LVR (loan-to-value ratio) for an owner-occupied home is 80%, meaning the bank will only let you borrow up to 80% of your home’s value.

So, 80% of $750,000 is:
$750,000 × 0.80 = $600,000.

Now, subtract what you still owe on your mortgage ($500,000) from the bank’s maximum lending limit ($600,000) to calculate your usable equity.

$600,000 – $500,000 = $100,000.

This means you may be able to access up to $100,000 as usable equity to purchase your next home.

How Do I Use The Equity to Buy an Investment Property?

Lenders require a 70% LVR for investment homes, meaning they will lend up to 70% of the property’s value. This means the other 30% needs to come from your pocket (or the existing home equity) to fund the deposit.

Using the scenario above, if you have $100,000 usable equity, you can calculate the maximum property purchase price based on the 70/30 split.

• Deposit (30%) = $100,000

• Purchase price = $100,000 ÷ 30% = $333,333

With $100,000 of usable equity, you can purchase an investment property up to ~$300,000 (let’s round it down, considering there’ll also be stamp duty, legal fees, etc) with the remaining 70% coming from the bank as a loan.

There are other scenarios and options, especially if you are looking at a new build. We cover this more comprehensively in our blog post about the minimum deposit needed for investment properties in New Zealand.

Benefits of Using Equity to Buy a Second Property

• Leverage: Using equity rather than a cash deposit, you can control more property while investing minimal personal funds.

• Grow Your Portfolio: A second property increases your real estate asset base, contributing to long-term financial growth. Over time, the second home will also build equity, which you may be able to access for more property investment.

• Income Streams: Rental income from investment properties can supplement your primary source of income or help repay existing loans.

A Few Borrowing Options for Accessing Equity

Using equity involves borrowing against the value of your current property to fund the purchase of another. There are three main ways to achieve this:

1. Refinancing Your Current Mortgage: By refinancing, you can increase the loan amount to access the present value of your usable equity. The funds can then be used as a deposit for your second property purchase.
2. Cross-Collateralisation: This involves using both your existing home and the new property as collateral for a single loan, effectively tying their values together. While this can simplify borrowing, it increases the risk of losing both assets if repayments falter. Also, if your circumstances change and you decide to sell, there is a higher risk of the bank keeping all the proceeds and paying down the loan. Loan to value ratios are often adjusted by banks depending on the current economy. Whilst the current LVR is 70% for investors, it has been lower at 60-65% in recent years, making it harder for investors to purchase another property.
3. Second Mortgage: You can apply for a second mortgage with another bank, to unlock the equity in your home. This option separates the two properties under different loans, allowing for greater flexibility in your investment strategy. Read our blog post about second mortgages to learn more.
4. Talk to our experienced investment property mortgage advisors for advice specific to your circumstances.

How to Choose the Right Property to Buy

When investing in property, leverage your equity for a property that best aligns with your income goals and investment strategy. Consider the following criteria:

• Rental Yield and Income: A rental property with a strong yield is an excellent choice for maintaining cash flow.

• Capital Growth Potential: Choosing a property in growing regions with good schools, proximity to employment opportunities, and key infrastructure projects typically experience faster price growth.

• Improvement Potential: Properties needing renovation offer opportunities to increase the market value of your property through upgrades. However, renovation costs must be weighed carefully to avoid overcapitalising the investment. Consider larger blocks of land, future subdivision potential, and even the option of adding a granny flat to help increase your rental income or help with mortgage repayments.

There’s Always Financial Risks to Consider

Affordability and Interest Rates

When taking on additional debt for a second property, affordability is key. Current interest rates directly impact your monthly payments, and lenders often use higher-than-market interest rate assumptions to assess your financial capacity. If rates rise, repayment affordability could be affected, increasing overall risk.

Insurance

Be sure to factor in insurance costs, lenders mortgage insurance (LMI) if applicable, landlord insurance, and home insurance. Our insurance brokers can give you the best advice on what minimum insurance is needed.

Tax Implications

Taxation is an essential aspect of real estate investing in New Zealand. There have been changes to the government’s Bright-Line test in 2024, and from 1 April 2025, interest expenses on rental properties are again fully tax deductible. Please talk to your tax advisor about your specific circumstances and financial situation.

How The OneStop Mortgage Brokers Can Help You Use Your Equity to Buy a Second Home

Using equity to buy another property is best done with the help of Matt Willoughby and the team at OneStop Financial Solutions. Our professionals have in-depth knowledge of contractual terms, lending rules, and bank and non-bank loans. We can help you access the equity in your existing property so you can buy a house and start your journey as a property investor.

Final Thoughts

Using equity to invest in a second property is a proven investment strategy in New Zealand, particularly for those with substantially higher home values vs loans. However, it’s not without its challenges. The key to success lies in understanding loan structures, ensuring affordability, and selecting the right investment property that aligns with your goals. With careful planning and a thorough understanding of funding options, you can turn your home equity into an engine of financial growth, right here in New Zealand. Talk to our experienced advisers today.