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Deposits: How much do you need to buy your first home?

Date Published: 6 December 2022

If you have less than 20% deposit, you are referred to (by the banks) as a Low Equity (or Deposit) Borrower. You are required to meet a different set of criteria to borrowers with 20% or more.

Note: this article has been updated to reflect the changes to the LVR rules. Information is current at 7th 
December 2022.
Here’s an article on those LVR changes.

Understanding the requirements of the banks is confusing. We’ve come up with the most common questions to try to make it all easier.

What is the minimum deposit that I need to buy a house in New Zealand?

The ideal deposit for any own-home purchase is 20%, but typically, the minimum required is 10% for an existing property and, in some rare cases, 5% for a turn-key build.

Note: your income needs to be very good for a 10% deposit, but it is possible. You’ll also need to explain why you haven’t saved more on your good income (for example, you’ve been paying down debt).

I heard banks weren’t lending to people with less than 20% deposit?

The rules have changed, and banks only have a certain amount of money they lend to low-deposit borrowers. Currently, 10% of the money lent out can go to low-deposit borrowers. Borrowers with less than 20% deposit will need to have a higher income than those with more deposit.

The short answer is main banks are still lending to low-equity borrowers, and it’s well worth talking to a mortgage broker to see if you meet the criteria. Even if your preferred bank isn’t lending this week, they could free up some money at any point.

Can I be gifted my entire deposit, or do I need savings?

The banks want to see that you are responsible with your money. If you have been renting and have not been able to save money, then are you likely to pay down your mortgage?  

Most banks, therefore, require that you have saved at least 5% of the purchase price – often referred to as “genuine savings”. So if you are buying a $500,000 home, you would need to save $25,000 on your own.  The rest of your deposit can be gifted by a parent. At the time of writing, one bank will allow a fully gifted deposit, but responsible spending must be shown.

What counts as “genuine savings”?

  • Money in the bank (obviously!)
  • KiwiSaver – including the amount received from the government and your employer.
  • A bonus from your salary.

What doesn’t count as “genuine savings”?

Note: The First Home Grant can be used as a deposit but doesn’t count as part of the required “5% genuine savings”.

Can I get a loan from my parents rather than a gift?

Yes, the money from your parents can be a loan. If there is interest to pay or regular payments to pay back the loan, this will be taken off your income, so be careful about this. The terms and repayments for this loan will need to be clearly laid out for your mortgage application.

What are some tips for getting a mortgage with a small deposit?

  • Keep your spending to a minimum. Banks prioritise giving mortgages to clients who are showing that they have their spending under control.
  • Minimise your secondary debt and risk. Don’t let the banks increase your credit card limit, and don’t take out any new lending.
  • And finally, our number 1 tip! If you’re a couple, bank at separate banks. Banks can often lend to their own customers first. But if you both bank with the same bank, you only have one option. If you bank separately, you now have two banks to work with.

What about the First Home Loan? How much deposit do I need for that?

If you meet the income criteria of the First Home Loan scheme, which is administered by Kainga Ora, you only need a minimum of 5%.

Read this article for more information on the First Home Loan.

Summary:

In summary, a 5% deposit is the minimum typically needed for Turn Key construction lending and only in rare cases. 5% is also all that is needed for the First Home Loan scheme. A 10% deposit is typically the minimum required for existing homes. Most banks don’t allow pre-approval for low-deposit borrowers, so you have to have a conditional offer accepted on a property before you can apply. This means you will want to look for “offer” type sales rather than auctions. Otherwise, a 20% deposit is the best amount of deposit to offer the bank.

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