Mortgage Process & Bank Requirements
Insight
Getting a mortgage in New Zealand involves more than confirming your financial position. Banks must also approve the property you’re buying, and that approval depends on the title, valuation, risk profile, property type and legal documentation. Many buyers underestimate how strict banks can be, especially for apartments, lifestyle blocks, high-risk cladding, cross-lease properties or homes with title issues.
This guide explains how mortgage approval works, what banks look for, and how to avoid the most common settlement risks caused by banking delays or unexpected lending conditions.
The Limits of Pre-Approval
Pre-approval is a financial check only. Banks assess:
- income and employment stability
- existing loans and expenses
- deposit size
- credit history
- loan serviceability
The bank still needs to approve the property itself. This is separate and often overlooked.
Need help before confirming finance?
A lawyer can ensure your conditions protect you until the bank approves the property, not just your finances.
How Banks Approve the Property
Banks assess property risk using:
- valuation reports (desktop, kerbside or full)
- LIM results
- title restrictions
- construction type and cladding
- earthquake rating (for apartments/units)
- insurance requirements
If the property carries risk, the bank may impose conditions, require repairs or decline the loan.
Properties Banks View as High-Risk
Common pitfall:
Buyers assuming the bank will overlook cladding, title defects or unit-title issues. Banks rarely depart from risk policy.
Certain properties routinely face stricter lending criteria:
- plaster cladding or monolithic cladding homes
- cross-lease properties with flats-plan errors
- unit titles with special levies or low NBS ratings
- lifestyle blocks with private services
- leasehold land
- homes with unconsented works
- homes in hazard zones (flooding, coastal erosion)
High-risk properties often require larger deposits or specialist lending.
Valuation Requirements & Shortfalls
Banks rely heavily on independent valuations. A valuation shortfall—where the property values lower than the purchase price—means the bank will lend less, requiring a higher deposit. Buyers often discover this late in the process if they’ve gone unconditional too quickly.
Insurance & Bank Conditions
Insurance must be active from settlement day. Banks need proof of full replacement or sum-insured coverage. Homes with certain types of cladding, past claims, natural hazard exposure or unconsented work may face limited insurance options, affecting lending.
How Mortgage Issues Affect Settlement
If the bank withdraws approval or cannot release funds due to unresolved conditions, the buyer may be unable to settle. Consequences may include:
- losing the deposit
- penalty interest
- being sued for damages
- default notices
This is why confirmation of finance conditions should never occur without written bank approval for the specific property.
Find a Lawyer for Mortgage & Bank Conditions
Providing the draft agreement, lending correspondence and property documents helps match you with lawyers who regularly advise on finance conditions, bank requirements and settlement risks.
Need help meeting bank requirements?
We connect buyers with lawyers experienced in lending conditions, title issues and finance-related delays.
Frequently Asked Questions
Does pre-approval guarantee my loan?
No. Pre-approval is always conditional. Banks must approve the specific property, including title, valuation, location, construction type and legal risks. Many buyers mistakenly assume pre-approval means the loan is guaranteed—this is the most common cause of failed settlements.
Why do banks need to approve the property?
Banks lend against the property as security. If the title has defects, the building is high-risk, or the valuation comes in low, the bank may reduce lending or decline the loan entirely. Property approval is separate from your financial approval.
What documents do banks review?
Banks typically review the Sale & Purchase Agreement, Record of Title, LIM, valuation reports and in some cases building reports. Any red flags can trigger conditions, reduce lending or delay settlement.
Can my loan fall through after going unconditional?
Yes. If the bank withdraws approval after you go unconditional, you are still legally required to settle. This can result in losing your deposit or being sued for damages. Buyers should never confirm conditions without written bank approval for the specific property.
What is a valuation shortfall?
This occurs when the independent valuation is less than the purchase price. Banks lend based on the lower of the valuation or purchase price. A shortfall means a larger deposit may be required or the loan may be declined.
You don’t need all the answers
Property issues can feel overwhelming — especially when you’re facing deadlines. Sharing a few details about your situation is enough for a lawyer to understand the context and guide you through the next steps.
Get Help Understanding Bank Requirements
Mortgage approval depends on the property as well as your financial position. Sharing the draft agreement, valuation details, lending correspondence and timelines helps match you with lawyers familiar with NZ mortgage conditions and settlement risks.