For those of you asking the all important question: ‘how much deposit do I need to buy a house in NZ’, the answer is not going to be the same for everyone. As we know, Auckland house prices differ vastly from the cost of a property in Ashburton or Dunedin. Certain low to middle income households can benefit from innovative government and lender support to get first time home buyers into a house of their own. Instead of calculating you an use an affordability mortgage calculator to give you your own answer and to explain how much you can borrow on a mortgage.
To understand exactly how much deposit for a house you will need, it is best to first lay out certain parameters that are important to you. By this we mean that you should have a general price in your head representing the average house price in the area that you are looking for. You may do well including the size and condition of the house and property, with a little flexibility to ensure options are available to you.
Once you have a figure in mind, you can begin looking into your personalised options for borrowing, as long as you meet the requirements for borrowing. This will depend on factors such as your current income, how long you have been contributing to KiwiSaver and your general financial situation. A mortgage advisor comes in handy at this point, and their free and knowledgeable advice is invaluable for helping you to maintain motivation on your journey and to guide you down a suitable path that will lead to home ownership success.
We are quite fortunate here in New Zealand where there are many different support solutions available to those of us who are looking for a low deposit home loan or even a no deposit mortgage in NZ.
It is imperative that you understand the reasons behind the preference for larger home loan deposits as well as the risks that are associated with purchasing your first home with the minimum deposit on a house NZ.
Let’s take a look at some of these now, as well as how much deposit you will need for a home loan here in NZ.
What is the average house deposit to purchase a property in NZ?
Most banks in New Zealand will encourage individuals to present with a 20% deposit in order to obtain a mortgage for a home that they intend to live in. This percentage is generally higher when a person seeks to purchase additional properties for a portfolio.
The reason a higher deposit is encouraged and advised is because the more that must be borrowed by an individual from a bank or lender, the more risk is associated with that agreement. As banks do not like risky situations, the risk is offset by forcing borrowers to use higher deposit, and/or additional charges and fees for low deposit borrowers.
Charges can vary quite a lot and may be found either in the form of lender’s mortgage insurance or by increasing the mortgage rate in order to absolve the potential risk. Lender’s mortgage insurance insures the lender against any loss should the repayments of a loan go into default.
A mortgage broker can offer you relevant information and direct you towards the best possible opportunity for your situation. They can also provide you with valuable resources that support you to save for the average house deposit in NZ.
When would you need a 40% deposit to get a mortgage in NZ?
If you are thinking of buying a pre-existing building as an investment property here in NZ, you are generally going to need to have a 40% deposit to get a mortgage. This is whether you use a property you already own as security for a new loan or come up with such a deposit through other means. 40% of a given house price is the expected deposit you will need to acquire should you wish to purchase a property with a pre-existing building on it.
Let’s take a look here for what size mortgage you can get borrow with a 40% deposit:
|Deposit size||Mortgage you could borrow||Price you can buy for|
Is it possible to get a mortgage with a 20% deposit in NZ?
If you are seeking to purchase a property that you intend to live in (aka owner occupied or home), then the standard deposit rate asked by traditional lenders is 20%. This average house deposit can be taken from your kiwisaver if it is your first home, loaned to you by family or friends or you can use options that are currently available through kainga ora or other government agencies designed to get kiwis into their own homes.
You will need to prove to the bank that you are able to make your loan repayments in order to be suitable for a mortgage. The banks consider your income and your credit rating, amongst other things, to determine the level of risk you might present.
For those of you looking to purchase an investment property, but do not have the required 40% deposit to get a mortgage, then you will be pleased to know that purchasing a new build only requires you to have a 20% home loan deposit.
Let’s take a look here for what size mortgage you can get borrow with a 20% deposit:
|Deposit size||Mortgage you could borrow||Price you can buy for|
Is it possible to get a mortgage with a 10% deposit in NZ?
As a 20% deposit is increasingly becoming unobtainable for many New Zealand households, a few solutions have been established by either the government or by traditional lenders.
- Buying a first home (new build).
The minimum percentage required for a deposit with a traditional lender, by traditional means, is indeed 10%. So therefore, it certainly is possible to get a mortgage with a 10% deposit in NZ. However, in order for an applicant to be accepted for a 10% deposit, they must meet a harder set of criteria.
Those seeking to obtain a mortgage with a 10% deposit will also find that they are slapped with more fees and you often need to prove that you are able to meet your loan obligations by having a very secure and considerably higher income.
Let’s take a look here for what size mortgage you can borrow with a 10% deposit:
|Deposit size||Mortgage you could borrow||Price you can buy for|
Are there certain kinds of properties that I should be looking at if I do not have a large deposit to play with?
New builds tend to be favourable (link takes you to a 6 video new build playlist on Youtube) for those looking to reduce their initial down payment as they are exempt from some lending regulations and offer significant advantages compared to purchasing an older property.
Lower maintenance costs are one of the biggest advantages for both first home buyers and property investors who are looking to purchase a new build. This is because:
- There will be no renovations expected to be done to a property and warranties by developer or builder for many elements of a new build should cover the next 10 years at the very least.
- Such properties boast improved moisture, thermal and acoustic ratings and have the potential to contain energy efficient lighting, heating and appliances.
- These features all point to new build owners having a higher net return on cash flow, which is a significant advantage for those people comparing their options.
- Investors looking into 20% deposit home loans can obtain LVR exemptions only with new builds.
With the potential of higher returns on their smaller initial investment, it is no wonder why many potential home owners and investors comfortably face these additional fees and larger mortgages to enjoy such benefits.
How about 5% deposit home loans?
If you don’t have a high income to be viable for the absolute minimum 10% deposit home loan and cannot scrape together the necessary percent deposit ahead of the consistent rise in house prices, then perhaps a First Home Loan, offered by certain lenders and underwritten by Kāinga Ora could be your foot in the door.
There are price and income cap criteria that must be met, in addition to the the fact that you:
- Will live in the home you are intending to purchase
- Do not own another property
- Are willing and able to pay a 1% lender’s mortgage insurance premium
- Are a New Zealand citizen, permanent resident or resident visa holder primarily living in NZ
- Be over 18 years old when applying
The price caps are designed to restrict the price of the property you are looking to buy and depend on the region that you are looking to buy in. They are as follows:
|REGION||CAP FOR EXISTING PROPERTIES||CAP FOR NEW PROPERTIES|
|Auckland, Queenstown Lakes District||$600,000||$650,000|
|Hamilton City, Tauranga City, Western Bay of Plenty District, Kapiti Coast District, Porirua City, Upper Hutt City, Hutt City, Wellington City, Tasman District, Nelson City, Waimakariri District, Christchurch City, Selwyn District||$500,000||$550,000|
|Rest of New Zealand||$400,000||$500,000|
Income caps for eligibility currently stand at $85,000 for a single borrower and $130,000 for two or more borrowers. Those who earn above this threshold will not be eligible for this First Home Loan opportunity.
What about those individuals who earn above the income cap or this is not their first home that they are looking to buy?
Under rare circumstances where a borrower has exceptional income but little to no deposit, banks may make an exception to the long withstanding rules of at least 20%+ deposit for investors looking at the requirements for a mortgage.
As long as there is vast and validated proof of an individual’s ability to repay a loan, then you may be approved for low deposit or even zero deposit home loans. This may be through a bank top up from an existing mortgage, which is explained in more detail below.
Does it impact what size mortgage I can get if my parents gifted me the deposit?
Many people are getting helped into their first home by having their parents contribute towards their deposit. You should seek advice before taking any action, often the best method is for parents to gift the deposit to their kids as this avoids guarantees and cross security across multiple parents.
If your deposit was not saved, but fully gifted, the bank will question your ability to afford the mortgage if you cannot demonstrate a history of genuine savings.
Can I get a home loan without a deposit in NZ?
A no deposit home loan in New Zealand can be achieved “practically” but not “literally” by using existing equity in an existing property. Existing homeowners can approach their banks at the right time and simply ask for a top up.
They then use the top up as the deposit on an investment property – this way you can buy an investment property without a deposit.
This is something we have helped hundreds of clients achieve and can be easier than it sounds and as long as you have done your own research and weighed up the risks involved, you can be adding to your property investment portfolio in no time.
If you have owned your home for a few years, then it is very probable that the market value of your property has increased significantly. By using the equity that you have built into your home, you can take advantage of the reduced deposit requirements for new builds and begin your property investment journey.
By choosing a new build, this will advantageously result with a home that is in high demand as it is new, compliant and healthy, requires no maintenance for at least a few years and therefore, will simply give back with gains on your reduced deposit investment.
You can approach your bank and discuss what the increased value of your house is from when you initially purchased it. You can ask the bank to lend you more money based on the new value of your home and there is a good chance that you will be able to recycle your equity and use it as a deposit on a new house.
When purchasing an existing build as an investment, you are currently required to present a 40% minimum deposit for a house. New builds however, only require a 20% mortgage deposit.
So for example, by asking the bank for $150,000 to borrow against your current equity, this can go down as a 20% deposit for a new build investment at $750,000. This still offers several lucrative options nationwide.
This is perhaps the most efficient way that you can meet the minimum requirements for an investment property house deposit in New Zealand without needing to directly come up with the necessary 40% deposit for an existing property or 20% deposit for a new build.
Important factors to be aware of if you wish to pay the minimum deposit on a house NZ.
As with any decision you make regarding property purchase and investment, you need to ensure that you are keenly aware of any repercussions that could be a reality for you.
Paying a minimum deposit on a house in NZ does mean that you are deemed a higher risk to the bank and as a result, you will need to pay additional fees. It is imperative you work out the impact and monthly cost of these fees to determine whether a low or no deposit home loan is profitable or even affordable, according to your situation.
Although it is commonly said that owning your own home is cheaper than renting, this simply isn’t true. Thinking about your finances and recognising the additional costs of home ownership, such as rates and maintenance.
The additional emotional and financial impact of owning a rental property which includes the subsequent welfare of your tenants, can also turn out to be a little more than you initially thought. Property managers will take a portion of your profit to work directly with tenants and provide relevant maintenance when necessary.
You must also consider future-proofing your finances and being aware of fluctuating interest rates that could hinder your profits or ability to service your home loan.
Be honest with yourself, don’t hope for luck to be on your side and enlist the support of financial advisors such as our mortgage brokers at mortgagehq to give you an educated opinion and proactive advice on your potential for owning one or more properties successfully.
What are the requirements to buy a house in NZ?
If you are buying or building a house here in New Zealand, you need to be sure that you fit into the relevant criteria that allows you to do so. Generally, only citizens and residents can buy and build, but certain circumstances and investment opportunities are available to foreigners as well.
This can depend on what passport you hold and it often requires a larger deposit to do so.
In addition to this, you need to have the correct finances and a good credit score. You need to have a stable income that is used as proof to the banks that you are able to meet your loan repayments on time.
If you are working for someone else, then you will need to present the last 3 months of payslips as proof of stable income. For those self employed, then ideally you will be showing the last 2 years of financial data for the banks to determine your reliability.
There is financial help available for those who are looking to purchase their first home, or in certain situations, subsequent homes as well. Kiwisaver is a common avenue for many potential New Zealand based home owners and you can take all but $1000 out of it to support your initial deposit.
If you have been contributing at least the minimum 3% of your income to your Kiwisaver account over the last 3 to 5 years, then you may also be able to benefit from the First Home Grant which provides an additional $5000 for existing properties and $10,000 for new builds.
Eligibility for this grant includes criteria for several factors:
- General eligibility
- Income Requirements
- Kiwisaver Contribution Requirements
- Deposit Requirements
- Property Requirements
Although many of these requirements are straightforward, they are designed for individuals looking to purchase a home that they intend to live in.
If you have purchased a home previously, you may still be eligible for this grant, as long as you meet all other necessary criteria and haven’t used the grant before or have other assets to the sum of 20% of the house price cap for the area you are looking to buy in.
Buying a home in New Zealand can be complicated, especially for first home buyers, however if you follow the recommended processes then you should come out of it unscathed.
Make sure you diligently make the necessary checks on:
- the condition of the property,
- with the council and
- on the value of the land and house.
Purchasing a home is likely to be the biggest investment you will ever make, and borrowing against the equity of your existing home can be risky, so it is essential you go through the right avenues to protect your investment.
If you would like more bespoke information regarding how you are able to buy a house in New Zealand…
We suggest you have a one on one chat with one of our mortgage brokers here at Mortgage HQ to offer you personalized support and advice for whatever step on the property ladder you are trying to reach.
Whether you are buying a first home in NZ and need to ensure you meet the necessary requirement for support networks and cash incentives available, or you are seeking to build your property portfolio with little to no deposit, then we have the resources to help.
Please get in touch for a no-obligation discussion about your finances and your future.