Using equity in your existing property may allow you to buy your next property with a hundred percent borrowing, which means no cash deposit will be needed when applying for a home loan. Many New Zealand property investors leverage their equity to purchase more and more investment properties, building up their wealth over the long term. 

The home equity is calculated by subtracting the amount you owe on the loan against your house from its market value. If you’re thinking about using the equity to buy your next rental property, the first thing you need to figure out is the market value of your current property.

How much is my house worth? A property valuation – an assessment of a property’s market worth – can help you understand the market value of your property. You’ve no doubt seen or heard of Capital Values (CV), Estimated Values (EV), Registered Valuations (RV), or other types of property valuation. When applying for a home loan, what types of property valuation report does bank use to determine the value of your house for mortgage in New Zealand? We’ll walk you through it all in the below.

What property valuation do banks use to determine the market value of a property for mortgage in New Zealand?

Video Timeline

1. Capital Value (CV) - 00:48

2. Estimated Value (EV) from CoreLogic, or iVal from Valocity - 01:41

3. Registered Valuation (RV) - 03:08

4. Purchase price - 04:34

1. Capital Value (CV)

Capital value (CV), also known as Rateable or Government Value, is set by local councils and helps determine how much they should charge you in annual rates. It’s a general guide to your property’s worth based on a number of different elements such as location, size and the recent sale prices for other properties in the surrounding area. Councils revalue properties every three years. The next revaluation for Auckland region was due to take place in2020, however, due to Covid-19 this has been deferred to late 2021.

When applying for a home loan, the CV is generally not accepted by all New Zealand banks. Even if there’s a slight chance of being accepted, then it’s often restricted to a very low amount of borrowings.

2. Estimated Value (EV) from CoreLogic, or iVal from Valocity

What do banks use to determine the value of a home for a mortgage? When it comes to property valuation, New Zealand banks generally have their preferred panel valuation service provider. The two major providers in NZ are CoreLogic and Valocity. In the normal process banks will order an ‘Automated Valuation Model (AVM) Report’, from their provider. This is known as the Estimated Value (EV) by CoreLogic and iVal by Valocity.

The Automated Valuation Model report is machine-generated, and it contains an estimated market value calculated by looking at recent comparable sales data of the properties located in the surrounding area. It will also take into account other relative factors such as land sizes, numbers of bedrooms plus other characteristics. The property values are updated frequently.

Most banks use AVM generated values, as a default option, to determine the market value of your property for a mortgage. In the majority of cases, they can lend the normal LVR based on the valuation report of EV or iVal.

3. Registered Valuation (RV)

A registered property valuation is an independent assessment of a property’s market worth conducted by a registered valuer. The registered valuation is based upon a full inspection of the property as well as the comparable sales data in the surrounding area. When valuing a property, a valuer will undertake a physical inspection of the property and send a comprehensive valuation report to the bank that you apply for a loan with.

The registered valuation is considered to be a more accurate and reliable way to get the value of your property, though this is time-consuming, and involves additional cost on top of your purchase price – a registered valuation requires four or five working days, and it usually charges around $900 to $1,000. In some situations, it can go up to 0.1% of the value of the property.

When financing a property either obtaining a mortgage or refinancing, each bank applies its own lending policy regarding if a registered valuation is required or not. As always, we’ll discuss this with you if you’re applying for a loan with us.

4. Purchase price

In some situation, the purchase price of a property can be used as the valuation when financing a property. For example, if you’ve bought a property recently and you’re thinking about topping up from the property, then you may be allowed to use the purchase price as the valuation. This is only relevant when the property is purchased recently, rather than five or ten years ago.

The purchase price is generally accepted by all banks, though some exclusions and restrictions may apply and their lending policies vary from one bank to another. For example, most of the time you’re not allowed to use the purchase price if it's a private sale. Also, the LVR will be restricted if you're not buying a standard residential property, such as a very small apartment or a terrace house. 

Thinking about financing a property?

Got questions? Or seek help? We’re more than happy to chat. Call us at 09 930 8999 for a chat with one of our mortgage advisors. At Prosperity Finance, we don’t have a one-size-fits-all solution for your home loan. We look at your case, understand your needs and situation then make a tailored solution for you. 

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Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.