Bank Declined Your Investment Property Mortgage? Here’s What to Do If It’s an Equity Hurdle
Every property investor eventually hits a wall: you approach the bank with your next great investment lined up, only to be told the numbers don’t stack up. If the decline was due to “not enough deposit” or “loan too large,” you’ve likely hit what’s known as the equity hurdle.
The equity hurdle is one of three standard checks banks apply to every mortgage application. The others are the income hurdle (can you afford it?) and the credit hurdle (is your financial history solid?). Let’s unpack what this equity challenge means—and how to get around it.
What Is the Equity Hurdle?
Banks in New Zealand assess every application based on Loan-to-Value Ratio (LVR). This is the percentage of the property's value that you’re borrowing. The lower the LVR, the less risk the bank takes on.
For investment properties, most main banks follow these general rules:
Owner-occupied homes: up to 80% LVR
New-build investment properties: up to 80% LVR
Existing investment properties: up to 60% LVR
There are occasional exceptions—some banks temporarily allow up to 90% for new builds—but these policies change quickly and often without public notice. Your mortgage adviser will have the most up-to-date information.
Step One: Check How the Bank Has Valued Your Current Properties
If you’ve been told you don’t have enough equity, start by asking how your existing properties were valued. Banks often rely on:
Council valuations (which can be outdated)
Desktop estimates (which may not reflect improvements)
If your property has been renovated, or if local prices have moved up significantly since your last valuation, it might be worth ordering a registered valuation to establish a higher, more accurate market value.
Always order this through your broker using the bank-approved system. This ensures the report is independent and acceptable to the bank—but be warned, some valuers are more conservative than others. If you strongly disagree with the valuation, you may need to order a second report.
Consider Buying a New-Build Investment Property
Because the LVR limit is higher for new-builds (up to 80%), this route can stretch your available equity much further.
Let’s say you own a $500,000 home with a $100,000 mortgage. You could potentially borrow up to 80%, or $400,000 total—giving you $300,000 in usable equity.
That $300,000 could serve as:
A deposit for a $1 million existing investment property (at 70% LVR with some non-banks)
Or a deposit for a $1.5 million new-build investment (at 80% LVR with a main bank)
Of course, these numbers depend on your income too—but from an equity standpoint, new-builds allow you to do more with less.
To qualify as a “new build,” the property usually needs to have a Code Compliance Certificate issued within six months of purchase and must be bought directly from the developer.
Explore Non-Bank Lenders for Higher LVRs
If you’ve found a great opportunity with an existing home but the 60% LVR limit is holding you back, non-bank lenders may offer a solution. Some are willing to lend up to 80% LVR on investment properties, even if they’re not new builds.
Interest rates are typically 1–2% higher than those at the main banks, but if the numbers work, it may be worth it.
Say you’ve found a do-up that needs $50,000 of work but could increase in value by $100,000. If a non-bank lender helps you buy it at 80% LVR with a higher interest cost of $7,000 per year, the $43,000 net profit may still make it worthwhile.
This strategy can work well as a short-term solution. Once the renovation is complete and the value has increased, you may be able to refinance back to a main bank under standard LVR rules.
Can Family Help Bridge the Equity Gap?
If you're short on equity, a gift or loan from parents may help close the gap. Banks are generally comfortable with gifted deposits as long as they’re documented correctly.
If the support is structured as a loan, it must be declared—and any repayments will be factored into your affordability assessment, which may shift the issue from an equity hurdle to an income hurdle.
The key is transparency. Your broker can help you run different scenarios to see how family help will impact your application.
More Flexibility Than You Think
Being declined by the bank for lack of equity can feel final, but it rarely is. You have more options than you might expect:
Get clarity on how your current properties were valued
Consider a registered valuation to unlock more equity
Explore new-build properties for higher LVR thresholds
Look into non-bank lenders willing to go to 80%
Discuss family help and gifting options with your broker
With the right strategy, your investment property goals can still move forward. And as always, a mortgage adviser can help you weigh the pros and cons of each route and present your application in the best light possible.