Good news – it may not be 20%
As house prices continue to fall, many New Zealanders previously locked out of the market could now afford to buy. So why aren’t more people taking advantage? Short answer: bad information. With rising interest rates and stricter lending rules from banks, many think they’ll never be able to save the full deposit. However, the Head of Mortgages at Global Finance, Aseem Agawal, says that isn’t always the case.
“Deposit requirements are often exaggerated,” he explains. “That’s why it’s always better to talk to a mortgage broker before doing desktop research.”
Here are four things you don’t hear about on the news:
Most banks lend with a 10% deposit
Many articles in the media tell us we need at least a 20% deposit to buy a house, but that’s not true. If you’re buying a new build or even an existing home, most banks will lend to you with a 10% deposit. Aseem explains the confusion.
“For existing homes, bank funding from month to month is limited, so being accepted for a 10% deposit could come down to the timing of your application. That doesn’t apply to new builds, as the government has exempted them to help with the housing shortage.”
It’s worth noting, adds Aseem, that if a bank lends on a lower deposit, it will compensate for the extra risk by charging a higher interest rate.
Banks must accept 10% deposit for a new build (even if it’s an investment property)
As the government tackles the housing crisis in New Zealand, there are initiatives to get new housing built quickly, and it’s benefiting home buyers.
“For new builds, banks must now lend to anyone with a 10% deposit,” says Aseem. “It may surprise you to know that many banks will also lend at 10% for new build investment properties.”
Get a first home grant of up to $10,000
Kāinga Ora (previously known as Housing New Zealand) offers grants of up to $10,000 for first-home buyers. To be eligible for the grant, you need to have a joint income below $150,000 (before tax) and contribute to KiwiSaver for at least three years. You’ll also need to have saved a 5% deposit.
So first-home buyers don’t overextend themselves, the home also needs to be within a reasonable price range. Check out the current regional caps here.
Use a 5% deposit for your first home
For eligible first-home buyers, Kāinga Ora can shrink your deposit requirement to 5%. Only five four banks are involved — Kiwibank, Westpac, Cooperative Bank, SPF and SBS Bank and TSB — so ask your mortgage broker to find out if you’re eligible. Unlike the grants, there’s no cap on the house price, but your annual joint income still can’t be over $150,000.
The best part about this scheme is that the lower deposit doesn’t mean a higher interest rate. Kāinga Ora removes the bank’s low deposit risk by underwriting the loans. You’ll have the same rate for a 95% loan as you would with a 20% deposit. This means you can buy sooner without drastically increasing the long-term cost of your loan.
Say yes to free advice
If saving for a 20% deposit seems impossible, there are plenty of ways to help you get into a home. The quickest way to find a mortgage to suit your needs is to talk to an experienced expert like Global Finance. Our mortgage brokers will give you a better understanding of what you could achieve and help prepare a stronger application, so you get the best deal and the most options. And don’t worry about extra costs – mortgage brokers are paid by the lenders, so it’s all free to you.
Think you have a big enough deposit? Talk to the team at Global Finance now.
The information and articles published on this website are true and accurate to the best of the Global Finance Services Ltd knowledge. The information given in articles on this website should not be substituted for financial advice. Financial advice should always be sought. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or their employees liable.