How much deposit do you need to buy a house in NZ

How much deposit do you need to buy a house in NZ?

You're going to need a deposit to buy a house, that's just a no-brainer. Typically, that’s 20% of the purchase price for an existing house or 10% for a brand new one.

The first thing to know is how the Reserve Bank of New Zealand (RBNZ) loan-to-value ratio (LVR) restrictions work.

For owner occupiers buying existing homes, the RBNZ LVR rules require most home buyers to have a 20% deposit. Banks are allowed to lend 1/5th of their money to people with lower deposits.

The rules have some flexibility. Firstly, they only apply to existing homes. Usually, you can buy a brand-new home on a 10% deposit. Or if you’re a first-home buyer and have a good relationship with your bank, you could get away with only 10% on an existing home by qualifying for some of the 1/5th that banks can lend to low-deposit borrowers, says mortgage adviser (broker) Craig Pettit of Loan Market.

One downside of only having a 10% deposit is that you’ll need a registered valuation on the property before buying, which means in effect you can’t bid at auction, says Pettit. You’ll need to buy a new property or an existing one you can negotiate on.

The other downside is that you’ll pay a slightly higher interest rate or a one-off fee to the bank. It won’t be much but having a 10% deposit does mean you’ll pay more in interest.

Every year a small number of first-home buyers qualify for the Kāinga Ora First Home Loan scheme, which enables people to get a foot on the property ladder with a 5% deposit. The loan is issued through KiwiSaver, and Kāinga Ora effectively guarantees 15% of it.

How lending criteria affects your deposit for a house

It’s not just the LVR rules that restrict what you can borrow. Banks have their own lending criteria terms to ensure their customers can afford the payments on their home loan.

When you buy your first home, your bank statements will be examined and you will need to prove to the bank that you’ve saved your own deposit. The bank wants to know that you are good at handling money and having to borrow the deposit from your parents or other sources suggests otherwise.

Most first-home buyers use KiwiSaver for their deposits along with money held in term deposits in a savings account or other bank account. Even if you need to delay a little to build up a better deposit, at least your money earns interest in the meantime.

The bank will also assess your ability to repay the loan, not just at current interest rates but against a stress test rate of 6% or more.

First-home buyers may be able to leverage either KiwiSaver account in two ways providing they have been saving for at least three years. First-home buyers can withdraw all but $1000 of their savings to use as a deposit. Depending on how much they earn and the price of the property, they might also qualify for a first home grant.

Providing the combined income doesn’t exceed $95,000 for a single buyer or $150,000 for two or more, and the price of the property isn’t greater than the cap for your region, then you qualify.

For a single buyer, the grant ranges from $3000 to $5000 for an existing home or $6000 to $10,000 for a brand-new one. For couples who both qualify for KiwiSaver, those grant numbers are doubled.

Once they have their deposit, most buyers meet with a mortgage adviser (broker) or the bank’s mobile mortgage manager who can organise “pre-approval”. That tells you how much the bank is willing to lend you.

Pre-approval is conditional approval. It’s not a guarantee that you’ll get the money even if you have the deposit. If your personal situation changes or the property has issues such as being too small or having a defective title, the bank may not lend the money. Even if you have the required deposit and the pre-approval, keep in touch with your mortgage adviser or manager before bidding or making an offer on a property.

All in on the finance side of things? Move on to the next part of your property journey with our first home buyers hub - learn about what reports you'll be wanting to arrange for, or check out our tips on what every new homeowner should have.