Most people decide whether to keep their current home by looking at the rent it would earn. The rent matters, but it is rarely what decides it.
The day you move out, the house you have lived in becomes an investment property. The deposit rules change, only part of the rent is counted, and the tax treatment depends on how the loans are set up. Those three usually decide whether keeping it works.
The Equity Test: Your Old Home Needs More Of It
Under current Reserve Bank settings, lenders can generally lend up to 80% of the value of a home you live in, but only up to 70% of a rental. Banks have a small allowance to go further, and it tends to be kept for strong applications.
When you keep one property and buy another, most lenders assess the two together: up to 70% of the rental’s value plus up to 80% of the new home’s.
Say your Birkenhead home is worth $950,000 with $350,000 owing, and you are buying in Albany for $1,250,000. The combined limit comes to about $1,665,000. You need $1,600,000 before costs, so the equity works, just.
Working through that calculation across both properties is the first step in the lending for existing home owners and rental investors I arrange.
The Income Test Is Usually The Harder One
That $1.6 million has to be serviced at the lender’s test rate, which sits well above the rate you pay.
The rent helps, but most lenders only count part of it, commonly around 70% to 75%, to allow for vacancies, rates, insurance and maintenance. $700 a week in rent may count as closer to $500. Most lenders will also want a written rental appraisal from a property manager, rather than a figure from a listing site.
Debt-to-income limits then compare your total debt with your total income, rent included. Interest-only on the rental lending can ease cash flow for a few years, but many lenders still assess it as though you were repaying principal, so it tends to help the monthly budget and rarely the application itself.
How much rent counts, and at what rate, varies between lenders. That is a big part of why two NZ banks can give you very different borrowing amounts, and with a keep-and-buy plan, the choice of lender can decide whether it goes ahead.
In my experience, this is where most of these plans are won or lost.
Where Each Loan Sits Matters For Tax
IRD’s position is that interest on residential rental property is fully deductible again from 1 April 2025. The general rule is that deductibility follows what the borrowed money was used for. Which property secures the loan does not change that.
So the loan you took out to buy your current home can generally become deductible once the house is rented. New borrowing to buy your next home usually is not, even if it is secured against the rental.
That affects how the loans should be split, and possibly which one you pay down first. Rental losses are also still ring-fenced, so they cannot reduce the tax on your salary.
These are questions for a property accountant, and I would rather they see the structure before the loans are drawn than after. I usually set it up alongside a full mortgage review, so the rental lending and your home lending are kept separate from day one.
What Changes The Day You Move Out
A few things need sorting before the first tenant arrives:
- Your insurance. A policy written for a home you live in may not suit a tenanted one, so review your home and contents insurance and tell your insurer.
- Healthy Homes standards. The house must meet the standards for heating, insulation, ventilation, moisture and drainage, and draught stopping. Older North Shore homes often need heating or extractor fan work first.
- Your lender. Let them know the property is now tenanted.
- Your personal cover. Carrying debt across two properties usually means your personal life insurance and income protection need another look.
- Bright-line timing. If you bought the current home within the last two years, ask your accountant about the bright-line test before you rent it out.
When Selling Makes More Sense
Keeping the house is the wrong call for some people.
Selling often comes out ahead when the rent will not come close to covering the costs, when the house needs significant work to be rentable, or when the equity would do more good reducing the mortgage on your next home. It also makes sense if carrying two properties would leave you with no buffer.
Some clients want to keep the old house because they are attached to it. That is understandable, but it works better as a tie-breaker than a strategy.
Run The Numbers Before You Call An Agent
Keeping or selling is far easier to decide before a listing agreement is signed. Once the equity, income and tax pieces are worked through, the answer is usually clearer than it first looked.
If you are weighing up whether to keep your current home, get in touch and we can set out both options side by side.
Until next time,
Oliver