Understanding Home Buying Eligibility in New Zealand: Getting a Home with a 5%, 10%, or 20% Deposit
Buying a home is a common dream shared by almost every Kiwi. In New Zealand, the deposit amount is fundamental in securing a property and will play a significant role in your financial stability. With so many complexities, many people often put their home-buying dreams on the back burner.
But the truth is there is hope for everyone to secure a home.
This blog will examine how much you need to get started and whether you can secure a home with a 5%, 10% or 20% deposit.
How Home Loan Deposits Work in New Zealand
When purchasing a home, the deposit is a percentage of your upfront purchase price. The rest is covered by a mortgage from a lender, typically a major bank like ANZ, BNZ, Westpac, etc.
Reserve Bank of New Zealand (RBNZ) sets the rules around lending, including Loan-to-Value Ratio (LVR) restrictions, which influence the deposit required. The LVR is the loan amount compared to the property’s value.
For example:
- A 20% deposit means borrowing 80% of the property’s value.
- A 10% deposit means borrowing 90%.
- A 5% deposit means borrowing 95%.
Your eligibility for these deposit thresholds depends on various factors, including the type of property, your financial situation, and the lender’s criteria.
Buying a Home with a 5% Deposit
The 5% deposit is advantageous because it allows first-time home buyers to move in easily with only a small amount of money saved. Yet, not all people are eligible.
Qualifying Options
First Home Loan Scheme
Supported by Kāinga Ora, it allows eligible first-home buyers to purchase a home with a minimum of 5%.
Eligibility Criteria
- An annual income limit (e.g., $95,000 for individuals or $150,000 for a couple).
- Be a New Zealand citizen, a permanent resident, or hold a resident visa.
- You must meet the lender’s affordability checks.
BNZ
BNZ is now accepting home loan applications from borrowers with deposits as low as 5%. Approvals are assessed on a case-by-case basis and are available to BNZ customers who have been with them for over 3 months. Applicants must demonstrate higher incomes than those with higher deposits, as the overall loan will be larger.
Key Considerations
- Most lenders require borrowers with less than a 20% deposit to pay a low equity margin or fee, increasing the loan cost.
- Smaller deposits require a higher monthly repayment and will attract higher interest costs over the loan’s lifespan, which can strain your budget.
- Bank 5% deposit deals open and close without warning, so discussing your options with a mortgage adviser is essential. Ideally, you should aim for a 10% deposit.
Buying a Home with a 10% Deposit
A 10% deposit strikes a balance between accessibility and financial responsibility. While still lower than the traditional 20%, it opens up more options than a 5% deposit.
Eligibility Criteria
- Borrowers who have strong credit profiles and stable incomes.
- Those purchasing properties under the First Home Grant scheme (if combined with KiwiSaver savings and contributions).
- Those who qualify for exemptions under RBNZ’s LVR restrictions.
Key Considerations
- Banks are cautious about lending more than 80% of the property’s value, but some will consider 90% lending for low-risk borrowers.
- Like with a 5% deposit, borrowers with a 10% deposit often incur higher interest rates or low-equity fees.
Buying a Home with a 20% Deposit
The ‘gold standard’ for a home loan in New Zealand is 20%. This benchmark guarantees that you have sufficient equity in your home, thus, from the very beginning, assuring both you and the lender.
Eligibility Criteria
- Borrowers with significant savings, equity from a previous home sale, or financial support (e.g., a gift from family).
- Those purchasing investment properties (which typically require a minimum 20–40% deposit under RBNZ rules).
Benefits
- Lenders are more likely to offer competitive interest rates with a higher deposit.
- Avoiding low equity fees reduces the overall cost of borrowing.
- A 20% deposit reduces the risk of negative equity (where your mortgage exceeds the property’s value if prices fall).
How to Improve Your Home-Buying Eligibility
If you’re struggling to meet deposit requirements, there are several strategies to enhance your eligibility:
KiwiSaver
First-home buyers can withdraw most of their KiwiSaver funds to help with their deposit.
Guarantor
A family member can guarantee a portion of your loan, helping you to secure lending if you have a lower deposit amount.
Other Ways to Get Into a Home Faster
Co-Owning
In some instances, co-owning with family and friends can help you get onto the property ladder faster.
Family Assistance
Another way to secure a property is with your family’s help. Be advised, though, that the terms and repayments regarding this form of assistance will need to be highlighted in your mortgage application.
Does this mean I can be gifted the whole deposit amount?
While this does sound appealing, lenders want to see that you are responsible with your funds and capable of repaying the loan. Banks want to see that regardless of the amount gifted, you have 5% saved and that these are genuine savings—money in the bank, a payout by your employer such as a bonus, or KiwiSaver funds.
For example…
To buy a $650,000 home, you must have $32,500 saved, and the rest of the deposit can be gifted. Remember, credit cards are not considered genuine savings and cannot be used to fund the deposit or any portion thereof.
Improve Your Financial Profile
Reduce debt, save consistently, and maintain a good credit score to increase your borrowing power.
Making the Right Choice
Regardless of whether you plan to pursue buying a home with a 5%, 10% or 20% deposit, your financial situation should be assessed for now and for the long term to safeguard you from falling into debt. A smaller deposit can help you get through the door faster, but there are trade-offs, such as strict loan conditions and higher interest costs. On the flip side, saving for a large deposit can take years but provide greater flexibility and financial security in the future.
Achieve Your Homeownership Dreams, Even with a Low Deposit
Many New Zealanders, even with lower deposits, achieve the dream of home ownership. By understanding your options, exploring government support schemes, and working closely with a mortgage adviser, you can confidently navigate the complexities of home-buying. With access to over 53 lenders, Rapson ensures you have more options and the best possible deal for your dream home. Start your journey today—contact us now, and let’s make homeownership a reality!