Chattels Valuation: Why It Matters for Your Mortgage
When you purchase a property in New Zealand, the sale price typically includes not just the land and building but also the items that come with it. These items are divided into two categories: fixtures, which are permanently attached to the property and treated as part of it for lending purposes, and chattels, which are moveable items that can in principle be separated from the property. The way these are valued and allocated within a sale can have real implications for your mortgage, your deposit requirements, and your tax position if you are purchasing an investment property.
What Counts as a Chattel?
Common chattels in a residential property sale include items like carpet, curtains and blinds, freestanding appliances such as a dishwasher or washing machine, light fittings, and heat pumps. The distinction between a fixture and a chattel is not always immediately obvious - a heat pump bolted to a wall might be considered a fixture by some and a chattel by others, and how individual items are classified can vary between sales.
In a sale and purchase agreement, chattels are typically listed separately so that both parties are clear about what is included. It is important to read this section carefully and ensure anything you expect to stay with the property is listed. If it is not listed and the vendor removes it before settlement, you may have limited recourse.
Why Chattels Matter for Your Mortgage
From a lending perspective, the value a lender will advance is based on the value of the land and building as security. Chattels, because they are moveable and depreciable, are generally valued more conservatively or excluded altogether from the security the lender takes. Some lenders will lend against chattels at a different rate to the property itself, and some will not include them in the security at all.
Where a chattels valuation becomes particularly relevant is when the allocated value of chattels in the sale is high relative to the total purchase price. If a significant portion of the purchase price is attributed to chattels rather than the land and building, the lender's assessment of the property value as security may be lower than the total price you are paying, which can affect the loan-to-value ratio calculation and how much deposit you effectively need.
Chattels and Investment Property Depreciation
For buyers purchasing a property as an investment, a chattels valuation has tax implications as well as lending ones. Chattels can be depreciated for tax purposes over their useful life, meaning a buyer who obtains a formal chattels valuation at the time of purchase may be able to claim depreciation deductions over subsequent years. The Inland Revenue has specific rules about the rates at which different types of chattels can be depreciated, and the initial valuation needs to be completed by a qualified valuer to be defensible.
This is an area where the advice of both a mortgage adviser and an accountant is valuable, as the optimal approach can depend on the specific property, the purchase price allocation, and your broader tax position as a property investor.
- Chattels are moveable items included in a sale but treated differently to land and building by lenders
- A high chattels allocation within the total price can affect the lender's security valuation and your LVR
- Investment property buyers can claim depreciation on chattels, making a formal valuation tax-relevant
- Chattels should be clearly listed in the sale and purchase agreement
- The distinction between fixtures and chattels is not always obvious - taking advice is worthwhile
Chattels valuation is one of those details that sits quietly in the background of a property purchase but can have a material effect on how the transaction works for your lending and, for investors, your tax position. At Chaperone, we make sure buyers understand all the moving parts of their purchase before they are committed.