It’s been a tough few years for first home buyers (FHBs). First, house prices soared, due to pandemic-induced low interest rates. Then, as a consequence of rising inflation, mortgage rates more than doubled.
In August 2021, the average one-year fixed rate for owner-occupiers on Canstar’s mortgage database was 2.58%. At time of writing (24/05/24), the same rate is now 7.19%.
FHBs trying to save for a deposit and afford a mortgage face Herculean tasks. But that hasn’t stopped young Kiwis achieving their dreams of property ownership.
The latest Reserve Bank figures show, over the past three years, mortgages to first home buyers have remained steady, averaging out to around 14% of all new mortgages.
So what options are there if you have a low deposit? Canstar explains:
- Low-deposit home loan
- New building exemption
- First Home Loan
- Housing association support
- Bank of Mum and Dad
- Squirrel: Launchpad
Low-deposit home loans
Banks have to adhere to strict limits on the number of home loans they can issue to borrowers with low deposits. These restrictions, called loan-to-value ratios (LVRs), are set by the Reserve Bank of New Zealand.
New mortgages to those with deposits of less than 20% must account for no more than 20% of a bank’s total new owner-occupier lending. So while it’s harder to secure a mortgage with a low deposit, it’s not impossible, especially if you:
- Can prove that you have a solid financial head on your shoulders
- Have a spotless credit history and credit rating
- Have a good, steady job
- Can prove that you live within your means and know how to save regularly
However, low-deposit home loans do come with a catch. Lenders will often charge a premium on top of their normal interest rates, either as an ongoing levy or as a one-off fee. For more on the subject, check out our story: Low Deposit Home Buyers Beware of the Low Equity Premium.
Or your lender might require you to take out lender’s mortgage insurance. The policy covers the lender for any losses it might incur if you default on your loan. Premiums are usually just added to the cost of your loan.
If you are considering a low-deposit loan, you might be better off delaying your aspirations of home-ownership until you can save a bigger deposit. For, in the long run, it could secure you a cheaper loan and save you tens of thousands in interest payments.
New building exemption
Loans to those building a new home are exempt. If you buy at an early stage of construction, or buy from a developer within six months of completion, the LVR rules will not apply to your loan application.
Currently, many smaller townhouses and apartments are being built. And these provide a great opportunity for Kiwis with smaller deposits to purchase first homes.
→ Related article: How Much to Build a New House in NZ?
Cheapest Home Loan Rates for First Home Buyers
The table below displays some of the 1-year fixed-rate home loans on our database (some may have links to lenders’ websites) that are available for first home buyers. This table is sorted by current interest rates (lowest to highest), followed by company name (alphabetical). Products shown are principal and interest home loans available for a loan amount of $500K in Auckland. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products. Canstar may earn a fee for referrals.
Compare Cheapest Home Loan Rates for First Home Buyers
First Home Loan
A First Home Loan is a special home loan for first home buyers, one that only requires a 5% deposit. First Home Loans are underwritten by Housing New Zealand (a government corporation) and are issued by several lenders, including: Kiwibank, SBS Bank, The Co-operative Bank, Westpac and Unity.
However, First Home Loans do come with strings attached:
- Earn $95,000 p.a. or less as an individual buyer/$150,000 p.a. if you have dependents, either individually or as a couple
- You need to pay a 0.5% lender’s mortgage insurance levy, which can be built into the loan
For more information on the First Home Loan scheme, check out our story: What is the First Home Loan?
Housing association support
Housing associations such as the New Zealand Housing Foundation allow you to buy part of a house but live in the whole dwelling. Similar to owning the house outright, the deal is rent-free.
You organise your mortgage with a standard home loan lender with support from the Housing Foundation. Then ownership is shared with the association until you have the money to buy the whole house.
The system offers some flexibility because you can increase your percentage of ownership whenever it suits. And, if you need to break from the deal, you can sell your share in the house.
Better yet, there is no fee on the share that the housing association owns. The Housing Foundation support arrangement is a great way to own equity if you don’t have the money to buy an entire home.
Bank of Mum and Dad
In the past, there was a stigma attached to calling on the Bank of Mum and Dad. But, in today’s economic climate, it’s definitely become a more widely accepted way of financing a home. If you’re lucky enough to have parents who are in a position to help you with a deposit, it’s an opportunity hard to pass up. They can either provide cash, or put up the equity in their home to help you get into yours.
Just be aware that many banks will still require evidence that you have saved at least some of the deposit yourself. This is because if you’ve not been able to save anything towards a deposit, lenders will be concerned about your ability to meet your mortgage repayments.
→ Related article: Buying A First Home? The Bank of Mum and Dad Can Help!
Squirrel: Launchpad
Squirrel’s Launchpad product is an innovative alternative to saving for a deposit. If you can save a 5% deposit, a Launchpad mortgage will effectively lend you the rest.
To get around the LVRs, Launchpad lets you borrow the rest of your 20% deposit (15% of the home’s value) as a personal loan. The other 80% is a regular mortgage. But be aware that, like all personal loans, the 15% deposit top-up comes with higher interest rates: 9.95% p.a. over 5 years. However the loan is structured so your repayments go to paying off that part of your debt first.
The amount you can borrow depends on the price of the house you’re looking to purchase:
| House Price | Maximum LVR | Minimum Deposit | Launchpad Loan |
| $1,100,000 | 91% | $100,000 | $1,000,000 |
| $1,000,000 | 92% | $80,000 | $920,000 |
| $900,000 | 93% | $60,000 | $840,000 |
| $800,000 | 95% | $40,000 | $760,000 |
| $700,000 | 95% | $35,000 | $665,000 |
→ Related article: Squirrel’s Launchpad: Helping Kiwis into First Homes
Cheapest Home Loan Rates for First Home Buyers
The table below displays some of the 1-year fixed-rate home loans on our database (some may have links to lenders’ websites) that are available for first home buyers. This table is sorted by current interest rates (lowest to highest), followed by company name (alphabetical). Products shown are principal and interest home loans available for a loan amount of $500K in Auckland. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products. Canstar may earn a fee for referrals.
Compare Cheapest Home Loan Rates for First Home Buyers
The final word on low-deposit mortgages
Finally, a word of warning. If you borrow more than 80% of the value of a home, not only are you likely to be charged a higher rate of interest on your mortgage, you could also be subject to a hidden cost called a low equity premium (AKA lenders’ mortgage insurance or mortgage indemnity insurance). If you can persevere and keep saving, it may be worth it to avoid this extra fee.
→ Related article: Low Deposit Home Buyers Beware of the Low Equity Premium
About the author of this page
This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.
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