Funding a holiday home

With summer just around the corner, you may be thinking about buying your own holiday home; whether it’s the quintessential kiwi bach on the beach or a second home by the lake, the idea is a pleasant one. But when it comes to purchasing, will a lender consider it an investment? And can rental income be taken into account when borrowing to fund a holiday property? And what about RBNZ rules around LVR (Loan to Value Ratio)?

If you do rent the property to others when you’re not using it, standard mainstream bank investment property rules apply, which means you can borrow up to 60 percent of the value of the property or up to 65 percent of the value of the property from January 2018.

If you’re wanting to use rental income to service the loan against the property, the lender is likely to consider the average of the income it generated in the last two years. It’s worth noting, that to allow for holding costs – that’s the rates, maintenance expenses, insurance and so on – the property income will be sensitised back to something like 75 percent.

If you don’t rent the property out, it is deemed a second residence, and consequently the RBNZ rule would typically allow up to 80 percent of the sale and purchase agreement or registered valuation.

At Finance New Zealand, we work with all the major banks as well as specialist property funders. When lending falls outside the standard LVR ratios, our non-bank financiers have greater flexibility to lend than the mainstream banks. If you would like to discuss funding a holiday property, or apply for pre-approval, give us a call.