The Income Hurdle: Why Most Kiwi Investors Only Own One Investment Property
For many of us, our first idea of building wealth through property probably came from playing Monopoly. Buy one house, collect the rent, and eventually grow your empire. But for the vast majority of real-life Kiwi investors, it doesn’t work that way. In fact, around 77% of investors in New Zealand own just one investment property. So what’s stopping them from expanding?
The biggest barrier isn’t necessarily interest, motivation or even equity. It’s income. Or more accurately, how income is assessed by lenders.
Why Income Becomes the Roadblock
There are plenty of valid reasons why an investor might stop at one rental—limited time, a desire for simplicity, or simply being content with a solid passive income stream. But in many cases, investors want to grow their portfolio and hit a wall when they apply for finance.
This is largely due to how banks test your ability to repay additional debt. Even if you feel financially stable and have equity for another deposit, your application could still be declined because you don’t meet the lender’s servicing criteria.
What Is Income Servicing and Why Is It So Tough?
When assessing your borrowing ability, banks don’t use your actual repayments—they stress test them. That means applying a theoretical interest rate (often around 6.5%) to your mortgage, even if you're currently paying much less. This is designed to protect borrowers from rate hikes but can significantly reduce your borrowing power.
It gets harder still:
Investment property loans are calculated over a shorter term—typically 25 years instead of 30—which increases the required repayments in the lender’s eyes.
Rental income is scaled down to around 75% to account for vacancies, maintenance, and costs—so a $30,000 annual rent becomes just $22,500 in their calculations.
Credit card limits—not balances—count against you, and banks assume you’ll be paying 3% of your credit card limit every month.
Other debts like car loans or student loans are treated as permanent, even if they’re almost paid off.
Put together, these factors can make your financial position appear much tighter than it actually is—and stop you from borrowing to buy a second property.
Example: What the Numbers Might Look Like
Let’s say your household earns $145,000 a year, and your existing rental brings in another $30,000. You owe $1 million in total across your home and your investment property. In reality, your repayments might be around $47,000 a year—something you can manage.
But under the bank’s stress test at 6.5%, that figure could balloon by $30,000 or more. Add in scaled rental income and theoretical credit card debt, and suddenly you no longer meet the lending criteria for a new mortgage—even if you feel financially sound.
So, How Do You Overcome the Income Hurdle?
1. Tidy Up Your Debts
One of the quickest wins is reducing or eliminating debts that impact your serviceability. Start with credit cards—reduce the limit or cancel them entirely. A $10,000 credit limit could reduce your borrowing power by as much as $46,000.
If you have personal loans or hire purchases, paying them off can boost your income-to-debt ratio. The same goes for nearing the end of a student loan—consider paying it off early if you’re close to the finish line.
2. Focus on Cashflow-Positive Properties
When building a portfolio, the numbers matter more than the features. Look for properties that generate surplus income after mortgage and operating costs. This improves your servicing position and makes it easier to get finance for the next purchase.
Alternatively, buy below market value and renovate to increase rental yield and capital value. The stronger your numbers, the easier it is to convince lenders you can take on another property.
3. Maximise Your Personal Income
As uncomfortable as it might be, asking for a raise can make a real difference. Even a small pay increase—say $2.50 an hour—can increase your borrowing capacity by around $50,000.
If you already own a rental, review whether the rent is in line with the market. Small increases here can also help strengthen your application.
4. Create a Budget and Stick to It
A disciplined budget has two major benefits: it can help you pay down your current mortgage faster, and it puts you in a better position to borrow. Lenders often look favourably on borrowers who demonstrate strong financial habits.
The Bottom Line
Owning one investment property is an achievement—but it doesn’t have to be the end of the road. The key to growing your portfolio is understanding how lenders assess income and debt, and taking proactive steps to improve your serviceability. With the right strategy and advice, that second property might not be as far off as you think.
Mortgage Lab’s mission is to be the digital town square for financial decision-makers to gain knowledge about their current and future mortgage. Follow us on Facebook and LinkedIn or subscribe to our newsletter to be notified of our latest articles.