Gearing a clad house

Question from John updated on 23rd April 2014:

Hi, we are moving to the South Island and have a home in Auckland. We have also bought in Dunedin. The Auckland home is cladded and the building report shows we have some moisture issues. These can be fixed. The house was built in 1988 with treated timber and there are no structure issues. It is worth $800,000 but has the stigma of being a cladded house. We think the best option is to put the Auckland house into our trust and claim any maintenance that needs to be done against the income less a mortgage. We hope to come out even or with a small profit. How highly geared will the bank let us go? The house value in Dunedin is $400,000 with a $250,000 mortgage. Our income is circa $220,000 per annum? Should we keep the house and rent or should we sell for less than we want too? Can you advise from a rental point of view? Cheers.

Our expert Kris Pedersen responded:

Hi John, it depends on what the bank notices. If advised that it has moisture issues the bank will not want to lend on it but note that some building reports may tend to be on the conservative side. If it is an invasive inspection then this is likely to be accurate. Be careful about the thermal imaging as I have seen these classify a property as leaky and the property actually is fine. If it is not major and the bank was happy to lend against it then the bank is likely to lend to 80% of the property’s value so $640,000. I would recommend having a discussion with a lawyer and accountant about the best way to approach this. Regards, Kris Pedersen

Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies.

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