A simple starting estimate
Property equity is broadly the estimated property value less the debt secured against it.
For example, if a property is estimated at $900,000 and the current mortgage is $480,000, the owner’s starting equity estimate is $420,000.
That does not mean the full $420,000 is available to borrow. The lender must consider the property, existing debt, security priority, the proposed facility, costs and the overall scenario.
Equity and usable lending capacity are different
Lenders commonly consider a loan-to-value ratio, or LVR. It compares total secured lending with the property value. Each lender sets its own acceptable parameters, and these can change according to property type, location, condition, marketability and security position.
Do not rely on a broad online estimate as a promise of lending capacity. It is only a starting point for discussion.
Information to gather
- Property address and type.
- Names or entities on the title.
- Your reasonable estimate of current value.
- Current mortgage and other secured balances.
- Existing lender details.
- Whether any sale, refinance or development is underway.
- Any unusual title, consent, lease or access issue you already know about.
HomeSec can begin with an owner estimate. No formal valuation is needed for the initial enquiry, although further verification and legal work may be required.
First and second mortgage positions
A first mortgage is the primary registered mortgage over the property. A second mortgage sits behind an existing first mortgage. The second position can involve consent, priority and inter-lender considerations, so it should not be treated as simply “using the remaining equity”.
The lending team needs to understand all existing secured obligations before it can assess an appropriate structure.
Property type matters
Residential, commercial, industrial, rural and vacant properties have different characteristics. Location, access, use, condition and market demand can influence whether the property is suitable security.
HomeSec considers property almost anywhere in New Zealand, but that does not mean every property or title will be acceptable.
Keep the business purpose central
Equity is only one part of the assessment. The funds must support a genuine business or commercial purpose, and the borrower needs a credible plan for payments, reduction, sale or refinance under the proposed facility.
Property offered as security may be at risk if the borrower does not meet the loan obligations. Obtain independent legal advice before signing security documents.