The myth of first-home buyer deposits

You’ll hear it in cafes and pubs up and down the motu: first-home buyers need a 20 per cent deposit before they can even think about getting into the housing market. But, says Kiwibank’s Auckland-based mortgage area manager Jo Kupa, it’s a myth – and one of several that make buying a property seem more difficult than it needs to.

And it’s why, she says, it’s a good idea for those who are ready - or almost ready - to enter the housing market to approach the 100% Kiwi-owned bank.

If they are saving towards getting their first home, are almost ready to buy, looking at homes on property websites, perhaps have pre-approval from a lender or are ready to make an offer, Kiwibank’s home loan specialists can give practical help on what assistance is available to qualified customers.

“The myth of deposit requirements stems back some time ago when the noise was around everyone having to have a 20% deposit,” Kupa says.

Jo Kupa, Kiwibank, Auckland-based mortgage area manager. Photo / Supplied.

“But over the years there've been many opportunities where a deposit hasn't had to be so great because of all the different types of home loans that people could obtain.”

Kupa points out that recent changes by the Reserve Bank to the loan-to-value ratios, known as LVRs and which control the amount of lending banks can do to customers with low deposits, have contributed to the increased lending activity.

Analysis by OneRoof and CoreLogic found that in August 2023, mortgage lending activity was up 7% year-on-year, the first year-on-year increase since August 2021.

Low-deposit lending to owner-occupiers jumped from 6% in May, just before the ratios were loosened, to around 9% in August, just below the new 15% limit.

First-home buyers made up the bulk of those accessing finance with a low deposit, although the actual number of mortgage registrations for the month were still low compared to long-term averages.

Kupa highlights other avenues available to first-home buyers without a 20% deposit.

Pathways to a low-deposit home loan include the First Home Loan scheme and Kāinga Whenua, both administered by Kāinga Ora – Homes & Communities, the Government’s housing agency. Kāinga Whenua, an initiative between Kiwibank and the agency, aims to help Māori achieve home ownership on papakāinga. A Kāinga Whenua loan is secured against the house only rather than the house and land like other home loans.

Importantly, the First Home Grant scheme and the KiwiSaver first-home withdrawal scheme are not pathways to a home loan – rather, they are intended to assist would-be home buyers to gather a deposit.

You don’t need to apply through a bank unless your bank is also your KiwiSaver provider and, despite the names, previous homeowners may be able to apply for either programme provided they qualify and have not received support from either scheme before.

First home buyers can go directly to their KiwiSaver provider to withdraw their funds for a home purchase. Previous home buyers still need to go to their provider, but need to go to Kāinga Ora first to get a determination letter.

You may be eligible for the First Home Grant if you have been consistently contributing to KiwiSaver for at least three years. You could get up to $5,000 if you're an individual who has been contributing to KiwiSaver for five years or more; if two people are purchasing a home together, they could combine their grants to be eligible for up to $10,000, which will go a long way towards the deposit for an existing home.

“The other great opportunity may be available if you are looking to buy a new build,” Kupa points out. “The grant could be a little bit more than what you're anticipating.

“If you were building or purchasing a brand-new home as an individual, you could get up to $10,000 to help towards the cost, and two qualifying people purchasing together could get up to $20,000 combined.”

First Home Grant rules change from time to time. Applicants need to be aware they need to own and live in the property for at least six months; they must be over the age of 18; and they must have earned less than the income cap over the last 12 months. The property being purchased or built must also be within the regional house price caps.

As with all major decisions, knowledge and information is power, and that’s why Kupa recommends would-be homeowners contact Kiwibank’s team as early as possible in the process.

“We're very proud of the lenders within Kiwibank. They have all been trained in the full scope of our services so they can have conversations with any customer that wishes to walk in the door to start their home loan journey.

“The sooner you talk to Kiwibank, the sooner you can get on the pathway.

“We see a lot of customers who’ve seen a property that they like, yet they haven't even made the first step to see whether they are eligible for a home loan or the First Home Grant. They start looking at properties and they may get a little bit overwhelmed with the whole process.

“Using the expertise that we have inside Kiwibank can help them understand what they will need.

“Some may not be eligible initially - they may have to go on a little bit of a journey and understand things like, what does a deposit look like? What do expenses look like? We can help them understand that, and what their opportunities are.

“Across New Zealand, people are saying ‘I'm never going to get into my home, it's too expensive.’ If they don't come and speak to a home loan specialist, that opportunity is just further, further away. We can help so much around understanding what the process is all about.”

“We’ll ask what deposit they have now - and a big thing is letting customers know what a deposit can actually be made up of. It's not necessarily just what’s in their KiwiSaver – it’s around how long they have been contributing, have they managed to put any savings into a separate account? Have they got funds that could be gifted from a close family member?”

Proof of consistent savings is important, Kupa says,

“A customer might have purchased other things before they realise that maybe they're in a situation where they can buy their first home.

“Ask yourself, what is more important – getting towards that goal of first-home ownership or buying a very expensive car?

“We can help them understand how to deal with those short-term debts so that they’re on a good, structured journey to get to that home deposit.”

Important, too, for the customer to consider things like where they’re looking to purchase.

“Where would they like to live – do they want to be near family or friends or close to different types of communities? That will help Kiwibank understand if they are going for the best home grant.

“All those things can contribute towards their home loan or purchasing their property, so there are a lot more opportunities if they can come in and have those conversations early in the piece.”

Kupa also suggests first-home buyers take advice from a number of sources. “Getting independent legal advice is also very important. I’m not saying that you shouldn’t talk with family and friends, but when you’re talking to someone independent, they've got an unbiased opinion.”

As the Government housing agency, Kāinga Ora is another vital point of contact for Kiwibank clients looking to buy their first property.

“We’re very proud of our partnership with Kāinga Ora – many people might remember it as Housing NZ – and we would always direct first-home customers towards their website so they understand what their grants are, and if they might qualify.”