If you’re buying a first home, then one of the key things that you need is the deposit.
Don’t let a low deposit stop you from trying!
Buying With Your Low Deposit
Of course a large deposit would be great, but you can buy a home in New Zealand with just 5% deposit.
The rest of the application has to stack up too, but one of the biggest issues that first home buyers have is not having enough deposit, and this is especially common in the larger cities where house prices are higher and therefore deposits need to be bigger too.
Talking to the banks, they will often say that you need to have a 20% deposit.
They say if you don’t have 20%, then they may be able to approve you as an exception, but often they will not be able to pre-approve you.
That doesn’t actually mean that you do need a 20% deposit though.
The reason that the 20% is the desired deposit is that the Reserve Bank of New Zealand deem anything less than 20% as having a low deposit. They have introduced rules that restrict the amount of lending that the banks can do to people with low deposits and while this has been announced to be changing, it is still very restrictive. Because the restrictions are in place, the banks have to monitor how many loans they’re doing to ensure they don’t breach the amount of loans done.
For this reason, it makes it very difficult for the banks to manage pre-approvals, as they do not know when those pre-approvals might be used and so to ensure that they don’t breach the levels of lending, they always take a conservative approach as well.
So banks can still do lending when there’s not 20% deposit, but they have to limit that lending and manage it very closely.
There are some exceptions.
First Home Loans by Kainga Ora
Some, but not all, of the banks offer a First Home Loan through the Kainga Ora arrangement and it’s exempt from the rules. What that means is, for those people that are eligible for the First Home Loan, then the bank can do any amount of lending they want.
It’s important to understand that not all banks use that arrangement, and particularly some of the larger banks do not. ANZ, BNZ and ASB, do not use the Kainga Ora First Home Loan and therefore if you’re speaking directly with those banks they’re unlikely to even mention that it exists.
Of the banks that do use the Kainga Ora first home loan, they are able to do quite a bit of lending for this. And that’s a good thing. Of the banks that do use the Kainga Ora first home loan, they are able to do quite a bit of lending for this. And that lending is without restriction. So it’s good for them.
The issue with the Kainga Ora first home loan is that you qualify. And as mortgage advisors, we see two key areas where people do not qualify. And that is the income caps that are opposed, and also the time in your current employment. These rules often mean that people cannot take advantage of these loans.
Outside of the main areas, they also have some restrictions on the valuation and comparable sales, which does make it difficult to use these loans in smaller towns. The advantage, of course, of the Kainga Ora first home loan is we can get approvals for you with anything from 5% deposit.
What if I cannot qualify? If you cannot qualify, but have 5% deposit, there are not a lot of options for you. We do often use the shared ownership schemes, which we can use from 5% deposit. But to get a mortgage for 95% has been very difficult in recent years.
That’s not to say you can’t get the mortgage, but it is saying that there’s very strong limitations and the criteria that the banks impose on those low deposit loans is tougher.
New Builds
The second exemption that is available is for new builds, and all of the banks have access to this.
The Government has always recognised that New Zealand has a lack of housing, and therefore has tried to encourage people to buy new builds. One way they’ve done this is by allowing the banks to do unlimited lending with low deposits on new builds.
There is a specific definition for a new build that you need to be aware of – and that means that it has to be either being constructed still, or if it’s completed it can’t have been more than six months since the Code of Compliance was issued.
At the moment there are a lot of property developers that are selling new homes at a discount so this is a pretty good option.
The banks are not all offering the very low deposit options for new builds, and most still require 10% or 15% deposit plus they test things harder when you have this lower deposit.
If you have 10% deposit or more, then there is a range of options available.
Non Bank 10% Deposit Home Loans
There are also non-banks that can provide mortgage funding with 10% deposit.
These loans have proven popular when your low deposit is not accepted by the banks, but you have the income to support a mortgage. Here at Mortgage Managers we do a lot of lending for first home buyers and it’s quite common for the banks to say no and therefore to use a non-bank instead.
But it’s not going to suit everyone, and this means we are often seeing people that want to buy, but cannot get approved by the banks or non banks for a standard home loan.
Are There Other Options?
But even with these exemptions it can be very difficult with your low deposit to get a home loan.
This is where shared home ownership has been very helpful for getting people into their own homes where they don’t meet the banks criteria and when otherwise they would have to remain renting for a few more years.
We’ve also come up with a special deal on the shared home ownership scheme.
With the support of some selected property developers we are able to offer a very special and very limited package that helps you get into your home sooner.
