How much deposit do I need to buy an investment property?

The banks generally require a 35% deposit to buy an investment property. These requirements are in force due to loan to value restrictions (LVR) imposed by the Reserve Bank that limit the amount of lending retail banks can offer to low deposit borrowers.

If you were to buy a property with a 35% deposit at the national average asking price on Trademe in November 2023, you’d need $259,395.

Luckily, it may be possible to purchase an investment property with much less than a 35% deposit if you know what you’re doing. In fact, you may be able to buy with just 20% or even 10% - here’s how.

To buy a new build property you’ll generally only need a 20% deposit. This is because new builds are subject to more relaxed LVR restrictions in order to encourage development and bring new properties into the rental market.

A new build is a brand new property bought straight from the developer, or from a developer via a real estate agent. This could be purchased off the plans or as a completed property (as long as the property has been built within the last six months).

You don’t need to use cash for your investment property deposit – you may be able to borrow it if you own your home. If you have more than 20% equity in your home most banks will allow you to borrow against that property to fund the deposit on your investment. Any equity you have in excess of 20% is often called ‘usable equity.’

To work out how much usable equity you may have, multiply your home value by 0.8 then deduct the amount of your personal mortgage. Speak to your lender to find out exactly what’s possible.

If you’re buying your first investment property or you’re unsure about how much deposit you need, it’s a great idea to speak to a mortgage broker. Banks are only able to discuss their loan products - mortgage brokers, on the other hand, can discuss the products of all available lenders.

A good broker can also offer advice on how much deposit you need, how to make your application more attractive, and which lenders are more likely to accept applications from you if you are a low deposit borrower.

Non-bank lenders are finance providers that aren’t banks. The main difference between banks and non-bank lenders is that non-banks don’t take deposits, or offer savings accounts so most of the money they lend is sourced via investors.

If you’re buying an investment property with a low deposit it may be worth talking to non-bank lenders because the Reserve Bank’s LVR restrictions do not apply to them. They will usually charge slightly higher interest rates and fees but they may be more likely to accept your application than a bank. (Talk to your mortgage broker about recommended non-bank lenders or do your research.