Auckland Council’s latest property valuation update has shifted the landscape for homeowners. The new rating valuations – based on the property market as at 1 May 2024 – show that average residential values have fallen about 9% since the last revaluation in 2021. For homeowners planning renovations, these changes bring both opportunities and challenges. Your home’s equity (the difference between its value and any mortgage) may have changed significantly, impacting how much you can borrow for a renovation. At the same time, the lending environment today is very different from 2021: the interest rates have increased from historic 2021 lows (the Official Cash Rate (OCR) plummeted to 0.25% in 2021, and is now 3.25%), and the reserve bank has activated debt-to-income restrictions. This article explains how the new valuations affect renovation plans – from equity and borrowing capacity to practical tips under current bank lending conditions.
Falling values are reducing some homeowners’ equity. If your new council valuation (CV) is lower than in 2021, your home equity may have shrunk. For example, many centrally located suburbs saw double-digit CV declines (–14% in some areas). Since your mortgage amount likely hasn’t changed much since 2021, a lower property value means a higher loan-to-value ratio (LVR). In practical terms, someone who had a 20% equity buffer might now find it closer to 10–15% if their home’s value dropped significantly. Conversely, a few areas defied the trend – for instance, some outer localities held their values with minimal declines. Homeowners in those spots may have maintained or even gained usable equity. It’s important to remember that council CVs are a rough market snapshot and shouldn’t be used as exact market valuations for lending. Although, CVs do signal market trends that banks need to consider when assessing loan applications.
Borrowing for Renovations
Renovating often means borrowing against your home, but banks’ lending rules have become stricter. Key factors to consider include:
- Deposit and Equity Requirements: Banks typically prefer you to keep at least 20% equity in your home (an 80% LVR cap) when borrowing more. Regulators have slightly eased LVR limits (now up to 20% of new owner-occupier loans can exceed 80% LVR), but generally you’ll need sufficient equity. If your new valuation reduced your equity, a top-up loan for renovation could push your LVR above that limit, making approval harder.
- Debt-to-Income Limits: In July 2024 the Reserve Bank introduced debt-to-income (DTI) restrictions for banks. Only a limited share of new lending can go to borrowers with high debt relative to income (e.g. more than 6× your income for owner-occupiers). This means even if you have equity, your income must comfortably support the larger loan. A big renovation loan that drives your DTI too high may be declined under these rules.
- Higher Interest Rates: Borrowing costs are higher now than a few years ago. Mortgage interest rates are around the 5% mark for many fixed loans (some banks are offering ~4.9% for 1-year fixed), whereas in 2021 they were as low as 2–3%. So plan for larger monthly repayments on any renovation loan.
These lending conditions mean homeowners need to approach renovations with a clear financial plan. On the upside, the lending environment is slowly improving: the Reserve Bank has begun trimming the OCR (down from a peak of 5.5% to 3.25% now), and banks have been cutting mortgage rates in response. Competition between lenders is heating up, so you may find slightly better deals or more flexibility if you shop around.
Renovation Planning in the Current Climate
Before diving into a home upgrade, take a step back and assess your situation in light of the new valuations and bank conditions:
Recalculate Your Usable Equity
Start by finding out your home’s updated market value. A starting point would be to consider the new council CV online, but for lending it’s wise to talk to your bank directly, or get a professional appraisal. Knowing your approximate home value, with your mortgage balance, lets you calculate your equity percentage: Equity Percentage = 100 x (Mortgage Balance / Home Value). If you’re near that 80% LVR threshold, a renovation loan could require a higher deposit or additional security.
Budget for Higher Borrowing Costs
With interest rates around their current levels, factor in the cost of servicing any extra debt. Use a mortgage calculator with today’s rates to estimate the new payments. Remember that while the OCR is lower than its peak, the Reserve Bank has signalled caution about further large cuts. Plan for rates to stay at moderate levels – your renovation should be affordable even if interest rates hover around 5–6% for a while.
Prioritise Value-Adding Renovations
In a softer property market, it’s prudent to focus on renovations that protect or boost your home’s value. Core improvements like fixing structural issues, adding an extra bedroom, or upgrading an outdated kitchen can increase the market value. Given that land values have seen the biggest drop (down ~13% on average for residential land), enhancing your property’s features might help offset that. If you are hoping to improve your home’s value, avoid making your home worth far more than any other in the neighbourhood (over-capitalising) as you may not recoup the cost if values stay flat.
Leverage Competitive Lending Offers
Keep an eye on bank offers tailored to renovators or homeowners. Some banks may offer specials like fee waivers or lower rates for certain loan-to-value brackets. As of now, major banks like Kiwibank have dropped 1- and 2-year rates below 5%, and others may follow. If your equity is a bit low, consult a mortgage adviser; banks have limited allocations for loans above 80% LVR and their criteria for these loans can vary. However, you might still secure funding if you present a strong case (e.g. proven ability to handle payments and a sensible renovation plan).
Auckland’s new property valuations are a reality check for homeowners considering renovations. Lower home values can mean that you may be able to borrow less than you’d hoped. However, lower CVs also encourage a careful, value-conscious approach to upgrading your property. By understanding your updated equity position and navigating the current lending rules, you can make informed decisions about if and how to renovate. The conditions in 2025 – from interest rates to bank policies – require more homework and prudence than during the boom years. With careful planning, you can still achieve your renovation goals. Use the opportunity of these new valuations to reassess and ensure any project you undertake is financially feasible and worth the investment in the long run.
If you were thinking about renovations, Modal Architecture’s staged renovation process may be able to help. Specifically, we can have your dream renovation priced early. Early pricing allows you to have an informed conversation with the bank. Together, we can work to refine a renovation until the finances work for both you and your bank.
References
Modal Architecture relied on some great sources to ensure this blog post was evidence-based. Specifically, we relied on articles and reference material from the following sources: 1 News, Auckland Council, RBNZ, and RNZ.
