Working with Property Investors: Key Considerations

Property investment is a significant part of the New Zealand lending market, and many experienced brokers work regularly with clients who hold or are building a portfolio of investment properties. These clients have different goals, different risk profiles, and face a different regulatory and lending environment than owner-occupiers. Developing a clear framework for assessing and placing investor lending is one of the more valuable capabilities a broker can build.

LVR Restrictions for Investment Lending

The Reserve Bank's LVR restrictions apply differently to investment property lending than to owner-occupier lending. At the time of writing, investors are generally required to have a larger deposit relative to the property value, reflecting the higher risk the Reserve Bank associates with investment lending. These thresholds are reviewed and updated periodically, and brokers should ensure they are working with current figures when assessing a client's position.

The practical implication is that investors typically need more equity or cash upfront per property than owner-occupiers. For clients building a portfolio, this can create a sequencing challenge: equity from existing properties can sometimes be used as a deposit for subsequent purchases, but this strategy requires careful planning and an understanding of each lender's policy on cross-collateralisation and portfolio lending.

Rental Income in Serviceability Calculations

Lenders vary significantly in how they treat rental income when assessing serviceability. Most lenders apply a shading factor to rental income - typically using a percentage of the gross rent rather than the full amount - to account for periods of vacancy, property management costs, and maintenance. The specific percentage varies by lender, and some apply different rates depending on whether the rental is residential or commercial.

For clients with existing investment properties, brokers need to collect current rental income evidence (usually a current tenancy agreement or property management statement) and understand how each lender will treat that income in their calculation. A client who appears serviceable on paper may not qualify at a particular lender if that lender's rental shading approach is conservative relative to the portfolio's debt level.

Interest Deductibility and Tax Considerations

New Zealand's rules around interest deductibility on investment properties have changed significantly in recent years, with implications for investors' after-tax cash flow and the attractiveness of interest-only structures. While it is not a broker's role to provide tax advice, being broadly aware of the current regime and its effects helps brokers have more informed conversations and know when to direct clients to their accountant.

Clients who have not reviewed their interest deductibility position recently - particularly those with properties acquired before rule changes came into effect - may have a different picture of their cash flow than they realise. Encouraging them to confirm the current position with a tax adviser before proceeding with new lending is a straightforward way to add value and avoid surprises.

Interest-Only Lending for Investors

Interest-only structures are more commonly used in investment lending than in owner-occupier lending, as they reduce the cash outflow on the investment and can improve short-term cash flow. Lenders have varying policies on the maximum interest-only term they will approve for investment properties, and the Reserve Bank has historically monitored the proportion of interest-only lending in the market.

Brokers should assess whether interest-only genuinely serves the client's strategy or whether the client simply prefers lower repayments without having thought through the longer-term implications. An investor who intends to hold a property long-term and never reduce the principal balance is making a different financial decision to one who plans to sell within a fixed horizon. Understanding the strategy first helps ensure the structure recommendation is genuinely aligned with the client's goals.

Portfolio Complexity and Lender Appetite

Investors with multiple properties can reach a point where some mainstream lenders become less willing to provide additional lending, either due to portfolio size, the total debt level, or the risk profile of the holdings. At this stage, understanding the full landscape of lender appetite - including non-bank lenders where appropriate - becomes particularly important. At Chaperone, our platform helps brokers track portfolio details and identify the most appropriate lender for each stage of an investor client's journey.