A quick heads-up: The information in this article is designed as a general educational guide only and does not constitute personalised financial, tax, or legal advice. Because everyone's situation is unique (and bank policies change frequently), we recommend speaking with a licensed Financial Adviser to see how this applies to your specific circumstances. For full transparency on our terms of service, how we are remunerated by lenders, and any specific situations where a fee may apply, please read How We Get Paid.
IIf you have been searching for a property in the central city or near the waterfront, you have probably stumbled across a listing that made you do a double-take.
A spacious, modern, two-bedroom apartment with panoramic harbour views... listed for just $150,000.
While the immediate reaction might be to call the agent and prepare your KiwiSaver withdrawal, there is a very specific, financial reason that price tag looks so low: the property is Leasehold.
For first-home buyers, leasehold properties can present serious financial risks, and New Zealand banks treat them with considerable caution.
Here is a straightforward look at how leasehold titles work, how ground rent operates, and why securing a mortgage on one is often challenging.
What exactly is a leasehold property?
To understand why banks are cautious, you have to look at what you are actually purchasing.
When you buy a standard freehold property, you own the building and the land beneath it indefinitely. When you buy a leasehold property, you only buy the physical building or the right to occupy a unit within it. You do not own the land underneath.
Instead, the land belongs to a separate landowner (often a local council, an iwi entity, a trust, or an institutional investor). You enter into a long-term lease with that landowner to let your home sit on their property.
The ground rent review: how costs can escalate
Because you do not own the land, you must pay the freeholder rent for occupying it. This is known as Ground Rent, and it is completely separate from your mortgage repayments, council rates, or Body Corporate levies.
The critical factor with ground rent is that it is not fixed permanently.
Most lease agreements include a Ground Rent Review clause, which allows the landowner to reset the rent at scheduled intervals—often every 7, 10, or 21 years. In New Zealand, ground rent is typically calculated as a percentage of the land’s current market value at the time of review.
How banks evaluate leasehold mortgages
Because of the variable costs and unique risk profile of leasehold land, lenders apply much stricter criteria:
1. Substantially higher deposit requirements
2. Strict stress-testing on your spare cash
When calculating how much you can borrow, the bank treats the annual ground rent as a permanent fixed expense. If a ground rent review is approaching within the next few years, credit assessors will often build an assumed rent increase into their calculations, which significantly trims your borrowing capacity.
3. Mortgage terms matched to the lease duration
Banks need to know their security is protected throughout the entire life of your loan. A lender will generally not grant a 30-year mortgage on a property if the lease expires in 18 years.
If the remaining term of the lease is short, the bank may require the loan to be repaid over a much shorter window—such as 10 or 15 years—which pushes regular repayments substantially higher.
Is leasehold ever the right choice?
Leasehold properties can serve specific purposes for certain buyers. They are sometimes used by commercial operators, short-stay accommodation investors with strong cash flow buffers, or retirees who wish to free up capital without prioritising capital growth.
However, for first-home buyers aiming to build equity and establish long-term financial security, leasehold properties rarely offer the stability needed. You carry the ongoing liability of land rent without benefiting from the land’s capital appreciation.
Checking the title before you make an offer
When scrolling through property portals, it is not always immediately clear from the photos whether a listing is freehold, unit title, or leasehold.
At Home Loan Factory, we can review listings with you before you commit time and money to an open home. We can explain how lenders evaluate the specific complex or property, and ensure you focus on homes that support your long-term wealth goals.
Spotted a property and want to know if the bank will actually lend on it? Get in touch with the team at Home Loan Factory today for a quick, easygoing chat.
