Most buyers need to stump up at least 20% of the asking price to get a mortgage, thanks to the Reserve Bank of New Zealand’s loan-to-value restrictions.
However buyers with less than the standard 20% deposit can still get a foot on the property ladder.
One is new builds, which have been soaring in popularity. Others include special deals from banks, non-bank-lender loans, and 5% deposit loans administered by Kāinga Ora.
New builds are exempt from the 20% deposit requirement, and buyers can get in with a 10% deposit, providing they meet other lending requirements.
Start your property search
CoreLogics chief economist Kelvin Davidson says the value of low-deposit loans in the last quarter of 2022 was 9.6%, up from 4% in the last quarter of 2021. “That signals to me that in relative terms, more owner-occupiers are looking at new-builds,” he says.
In that same three months to December 2022, 28% (1853) of first home buyer purchases were done with less than a 20% deposit. Of the 33,203 new mortgage registrations by other owner-occupier buyers in the same period, less than 2% were with a low deposit.
Viewed another way, without separating out first home and other buyers, the total value of owner-occupier lending in the last three months of 2022 was $11.2 billion, of which $1.5b was for low deposit lending. “That’s 13.4% of the total,” Davidson says. “Of that $1.5b, roughly $1.1bn was exempt from the LVR rules, perhaps because [the purchase] was a new-build.”
Read more:
- $900 a fortnight extra on your mortgage bill: What can Kiwis do to beat the squeeze?
- Tony Alexander: Nine reasons why the housing market is likely to change its tune this year
- NZ’s hottest: The suburbs where house prices are still on the rise
According to Kāinga Ora figures, an increasing number of first home buyers are securing a loan with just a 5% deposit, via the First Home Loan or First Home Partner scheme.
Another route to buying with less than a 20% deposit is to qualify for the 10% o f new lending that banks are allowed to do over the LVR restrictions. Those loans are tough to secure and are typically only available to existing customers with good incomes.
With banks unable to meet their sales targets for mortgages, however, some are starting to be more flexible. Westpac has quietly started offering low deposit lending to other banks’ customers, something that would have been unthinkable last year.
The bank didn’t make a public announcement, instead communicating quietly with mortgage advisers. Even so the bank has been swamped with a high volume of applications.
Mortgage adviser Stuart Wills who runs the 59,000-member Kiwi First Home Buyers Group on Facebook, says the move was so popular that Westpac had to restrict it to live deals only after a couple of days. “There is demand for sure,” says Wills.
A Westpac spokesperson told OneRoof the bank had received a high volume of applications. It had a quick rethink and tightened up a bit. “Moving forward, we are restricting our high LVR applications to existing Westpac customers, or applicants [from other banks] who have already signed a sale and purchase agreement.”
Some 28% of first home buyer purchases in the last quarter of 2022 were done with a low deposit. Photo / Ted Baghurst
Westpac’s move is one example of banks doing quiet discount deals through mortgage brokers. BNZ is said to be offering a 4.99% one year fixed rate and last week ANZ reduced its uncommitted monthly income [UMI] figure from $1600 per month to $1300 per month.
Ryan Smuts, director and mortgage adviser at Kris Pedersen Mortgages, said: “This basically means it is easier for borrowers to get a home loan if they previously didn’t have sufficient income to have a UMI of $1600 per month.”
Campbell Hastie, of Hastie Mortgages, says low deposit loans are still a risk for the banks. “For example, you get conditional approval to give the customer confidence to confirm the contract. The approval lasts three months but the build won’t be completed for 12 months. Meanwhile the servicing test rate goes up and affordability shrinks. Then add construction delays or council delays etc. We’ve had some sleepless nights in this office as we renew and extend approvals over and over praying for the finish line to appear.”
Hastie says the buyers who are successful at getting low deposit lending are those buddying up with another buyer. “If you can’t meet that debt servicing threshold, then it’s either a new build, [which is] not everyone’s cup of tea, or a new city.”
Kāinga Ora and non-bank lenders
Last year 1473 homes were bought using Kāinga Ora’s First Home Loan, a scheme designed for first home buyers who can afford to make regular repayments on a home loan but have trouble saving for a large deposit.
And another 179 homes were bought through First Home Partner, the agency’s shared ownership scheme.
Wills says until recently mortgage advisers were not able to assist with the First Home Partner loans; however SBS Bank has opened that up now.
Non-bank lenders are also an option. iLender NZ adviser Jeff Royle says he has settled two 85% loans this year for first home buyers with non-bank lenders. One of the buyers had a strong savings history, but who had old impaired credit. The second was a self-employed couple where the property needed maintenance, which meant their bank wouldn’t lend. Royle says confidence is returning to the market, albeit slowly.
