Low deposit? You could still get a home loan

Why things are looking up for first home buyers

First home buyers in New Zealand have had it tough for a while. Prices have been on the rise for years, and since 2013, LVR rules have meant that most buyers need a deposit of at least 10%. When the average house price is roughly $700,000, saving that deposit is a struggle for most people.

But recent changes to LVR restrictions mean things may get easier for first home buyers soon. Thanks to the COVID-19 crisis, LVR restrictions have been removed, which means banks could start to offer more low-deposit loans. Along with KiwiSaver grants, first home buyer loans, and help from family, this gives low-deposit buyers more options than ever.

Of course, banks still want to know that they’ll get their money back when they lend to you, so they’re not likely to remove restrictions altogether. If you’re looking for this sort of loan, you need to prove to the bank that you have the income to make loan repayments and that you’re responsible enough to take on a mortgage.

Here’s how to up your chances of securing a low-deposit loan:

Employment and income

A stable job and consistent income are essential for any mortgage – and even more so if you have a low deposit. Most lenders will be looking for proof of employment and payslips going back at least 3 months. If you’re self-employed or running your own business, you’ll probably be required to provide evidence of stable trading for the last 12-24 months. It’s about proving that you have an adequate, secure income, as you’re taking on a major responsibility in the form of a mortgage.

Because of COVID-19, banks will also be concerned about redundancies and business closures, so they may take a look at your industry – some sectors are higher risk than others.

Loan vs income

Low-deposit loans often have different repayment requirements – many banks and other lenders want you to pay off the first 20% of the loan as quickly as possible, to lower their lending risk and put you in the same position as other borrowers. They may require that you pay off this first portion of the loan at a higher rate, rather than making minimum repayments.

Before you’re approved to borrow, they will look at your ability to service these higher repayments – you may need to provide a detailed budget to show that you can afford the mortgage alongside your other expenses.

Ability to save

You may not have the full 20% deposit, but if you can show that you have been able to save a significant amount over time, it speaks about your ability to reduce spending and prioritise your mortgage. You should have bank records showing savings being deposited over time, rather than a lump sum being given as a gift or loan.

Credit history

A history of failing to pay debts or making poor financial decisions will obviously make a difference when it comes to a loan application. Banks want to lend to people who will pay them back, and if you’re applying for a low-deposit loan, this is doubly true. Essentially, a low-deposit mortgage is an exception to the usual mortgage rules, so your application needs to be flawless – a poor credit history is likely to ruin your chances.

Other debts

Credit card debt, personal loans, car loans, hire purchase, even student loans – the more debt you have, the worse it looks on your loan application. More debt means more money spent on other repayments, and a reduced ability to pay your mortgage. If you’re planning to apply for a mortgage, work on getting your debt under control first.

More options for low-deposit borrowers

You can prove your income and savings, reduce your debt, and still get turned down for a low-deposit home loan. But that doesn’t mean you have to give up your dream of homeownership – there are other options. Grants, special loans, and help from family can all help you get into your own home without a 20% deposit.

Tap into KiwiSaver

If you have been paying into KiwiSaver for at least three years, you may qualify for a Homestart grant. This gives you $5000 towards your deposit for an existing home or $10,000 towards a new build. If you’re buying with a partner, that means up to $20,000 towards your deposit – that’s a significant boost.

You may also be able to withdraw most of your KiwiSaver contributions to put towards your deposit – these can add up if you’ve been paying into a scheme for a few years.

Build your own

Buying an existing property requires a 20% deposit, but building from scratch is quite different. Because the government wants to encourage new builds, you may only need a 10% deposit to build your own home. Of course, this option can be difficult and costly in other ways, so make sure you know what you’re getting into first.

Get an expert onside

Whatever your circumstances, buying your first home is complicated. You have to deal with lenders, sort out deposits and documentation, and apply for grants or special loans if you need them. That’s why it’s so important to have an expert mortgage broker on your team. Mortgage brokers don’t charge fees, and they work for you, so there’s no downside to getting help.

Your broker will be able to give you advice and work out your options, talk to the bank on your behalf, help you fill out applications, and make sure you get the best possible loan, low deposit or not.

Looking for a low-deposit home loan? Make an appointment with one of our expert brokers now.

**These are general guidelines and are by no means a reflection of bank or lending policies