Why banks turn away some property as security
Banks like security that’s easy to value and quick to sell: a standard house in a town or city, freehold title, full consent, first mortgage. Their credit policies and their capital requirements push them strongly in that direction. Anything that sits outside the mould, even if it’s valuable, can mean a lower lending percentage or a straight decline.
For business owners, that’s a frustrating gap. A lifestyle block near Cambridge or a commercial yard in Rolleston can hold serious value, yet still not count as acceptable security at the bank.
The kinds of security our lending partners consider
| Property type | What lenders look at |
|---|---|
| Lifestyle blocks | Size, location, dwelling, access, how saleable it is |
| Bare land and sections | Zoning, services, access, subdivision status |
| Rural and semi-rural property | Land use, improvements, distance from a town |
| Commercial and industrial | Tenancy, lease terms, building condition, use |
| Mixed-use buildings | Split between residential and commercial parts |
| Second mortgages | Equity left after the first mortgage, first lender’s position |
| Supporting-party property | The supporter’s informed consent and independent advice |
Loans range from $20,000 to $1m, and every loan is priced on the individual circumstances. Lending ratios are generally more conservative on less conventional security, so the equity cushion matters.
Second mortgages, explained
A second mortgage sits behind an existing loan on the same property. If the property were ever sold under a mortgagee sale, the first lender is repaid first, then the second. That ranking is why second mortgages are priced differently from firsts, and why lenders look closely at how much equity remains.
The big advantage for business owners is that you don’t need to disturb your existing home loan, which may be on a good fixed rate with break costs if you moved it. Our guide to second mortgages for business funding explains how they work in detail.
Using a supporter’s property
Sometimes the best security belongs to someone else: a parent, a sibling, a business partner. A lender can take security over a supporting party’s property with their agreement. It’s a serious commitment for them, because their property is at risk if the loan isn’t repaid, so they’ll need to understand the arrangement fully and take independent legal advice. Handled well, it’s one of the most common ways a business owner without their own equity gets funded.
Example scenario
Example scenario — for illustration only. A Waikato agricultural contractor needed funding to clear GST arrears and replace a tractor after a wet season. His bank would only lend against his home, which had limited equity. He also owned a lifestyle block near Cambridge with a small cottage. The bank’s policy treated the block cautiously, but a specialist lender took a first mortgage over it on a conservative basis, paid IRD at settlement and funded the equipment.
What slows these loans down
Complex security takes a little longer, mainly because of the valuation and legal work. You can help by having ready:
- the title reference or address;
- details of any existing mortgage and its balance;
- leases or tenancy agreements for commercial property;
- anything you know about consents, easements or access.
Getting started
Describe the property and what you need, even briefly. Start an enquiry, and a lending specialist will tell you whether it’s likely to work.