Property Development: What to do if Banks Won’t Play Ball
Thinking about subdividing, building, or buying a site with development potential? You’re not alone - property development remains one of the most powerful wealth-building strategies in New Zealand. But turning a great opportunity into a funded project can often hit a wall when it comes to getting a mortgage with one of the big banks.
Banks have a specific appetite when it comes to property development mortgages… and if your proposition doesn’t tick all the boxes, it could be game over before you even break ground.
In this blog, we’ll explain:
What banks look for in development finance
Why many good projects get declined
How a non-bank mortgage can keep your project moving
Real-world examples of deals that were funded outside the bank
WHY BANKS SAY NO
The main trading banks like ANZ, ASB, BNZ and Westpac tend to be risk-averse - especially when it comes to property development mortgages. Even if your project makes commercial sense, the bank may still say no.
Here’s what they typically want to see:
A strong servicing position (can you afford the mortgage from income alone?)
At least one pre-sale, especially for multi-dwelling builds
Detailed costings, consents, and fixed-price contracts
Previous development experience
A large deposit (30%+ equity)
If you're missing one or more of these, you're at risk of being declined for a mortgage entirely - or being offered such limited funding that your project becomes unviable.
WHAT ARE THE ALTERNATIVES?
Just because the bank doesn’t approve your mortgage, doesn’t mean the project can’t go ahead. Non-bank lenders and specialist development financiers take a different view. They focus more on:
The strength of the asset and the projected end value
Your equity contribution across the full security set
Exit strategy (e.g. sale or refinance)
Feasibility of the project itself - not just your income
While the interest rates with a non-bank mortgage/loan are higher (currently 8.75% to 11.5%), they come with flexibility, faster approval timeframes, and structures that suit the real flow of a development project.
SCENARIO 1: SMALL RESIDENTIAL SUBDIVISION
Client: Joe – an experienced builder
Project: Purchase a 1,200m² site and subdivide into two titles
Goal: Build two new townhouses and then sell both
Funding required: Joe needed a mortgage of $1.4M (land + construction)
Bank’s Response:
Required pre-sale of at least one townhouse
LVR capped at 60%
Joe didn’t want to sell early - he believed completed homes would achieve better market value
Solution:
Rather than getting a mortgage from a main bank, we approached a non-bank development lender who funded 100% of the build cost and 70% of the land value. No pre-sale was needed. Funding was released in stages, based on progress milestones. The interest was slightly higher, but the speed and flexibility allowed Joe to complete and sell on his terms - at full market value.
SCENARIO 2: SUBDIVISION WITH NO SERVICING
Client: Sarah – full-time employee with a salary, owns her own home with strong equity
Project: Purchase a second property with subdivision potential
Goal: Complete minor works, subdivide the land, and sell one title to clear debt
Funding required: $720,000
Bank’s Response:
Mortgage declined due to lack of income to service the loan
No pre-sale in place
Sarah’s strong equity position wasn’t enough to meet mortgage affordability criteria
Solution:
A non-bank lender approved a mortgage based on the total security position (meaning both properties combined) rather than Sarah’s income.
Mortgage term: 12 months
No regular repayments - interest and fees were capitalised (added to the balance and paid off in full at the end of the project)
Exit strategy: Sell one of the properties after subdividing
This approach meant Sarah could move forward with the subdivision and avoid cashflow pressure during the project!
WHY CAPITALISED INTEREST CAN BE HELPFUL
When interest is ‘capitalised’ it means you don’t make monthly mortgage repayments during the term of the loan. Instead, the interest accumulates and is paid off at the end - typically when you sell or refinance.
This structure suits projects where income is limited during the build, but a lump sum is expected at the finish line. It can really relieve financial pressure, especially if the project timeline is tight.
HOW TO ASSESS IF THE DEAL IS WORTH IT
Non-bank mortgages/development loans come with higher lending costs, but they can unlock value when the numbers stack up.
Before diving in, ask yourself:
What’s the total cost of the project? (land + build + finance + consents + legal + contingency)
What’s the expected resale value?
After repaying the loan and fees, what’s your estimated profit?
Is the risk/reward balance right for you?
If there’s a healthy margin and a clear exit plan, higher-cost funding can still result in a strong return!
WANT HELP CRUNCHING THE NUMBERS?
I can help you run the numbers before you commit. At WealthHealth, we use detailed feasibility tools to model project costs, capitalised interest, and potential returns - so you know upfront whether it’s a smart move.
Would you like access to a Property Development Profit Calculator?
Click here to contact me and I’ll send you one to play around with!
LET’S GET YOUR PROJECT MOVING
Banks might be your first port of call, but they’re not always the right fit when it comes to mortgages/lending for development projects.
Whether you're subdividing, building townhouses, or just exploring options, I can help you:
Find the right lender (bank or non-bank)
Structure the deal to suit your goals
Understand the costs and potential returns
Build an exit strategy that works
Let’s talk before you give up on your plans.
There’s almost always a path forward - you just need the right guide.
Click here to contact us
Our blog is not intended to be taken as personal advice and is for informational purposes only.
Before acting on any information, contact WealthHealth to ensure it is suitable for your circumstances.