High LVR lending (low deposit loans)

With house prices in NZ rocketing for the last fifteen years and recent interest rate hikes (along their stubborn refusal to come back down at the same pace), you could forgive potential buyers for a gloomy outlook. But it’s not all bad news!

In order to make the property market more accessible specifically to first-home buyers, the RBNZ introduced a scheme in May 2024 whereby banks were allowed a small portion of their loans to be at a 95% Loan-to-Value Ratio (LVR). In plain English, this means that under certain strict conditions, first-home buyers may only need a 5% deposit.

That’s pretty exciting news! So what do you need in order to apply for that?

Borrower criteria

• You’ll need to be a New Zealand permanent resident over the age of 18 years old.
• The 5% deposit needs to be genuine savings – in general this means a savings account where the bank can see a regular contribution from your earnings, but it can also simply be the money you’ve put into your Kiwisaver.
• Money that you’ve been ‘gifted’ (from say, an inheritance or the bank of Mum and Dad) will not be able to count towards the 5% deposit in most cases. Additional money you’ve been gifted does open up your options though, as banks may then be to offer a lower interest rate (for example, their ‘advertised rates’).
• You’ll need to have stable employment outside of any ‘trial’ periods, and the lending bank may ask to see regular pay slips for a certain period (often the last three is sufficient).
• You’ll need a clean credit history – this is assessed case by case and the definition of ‘clean’ will vary by lender.
• Importantly, you’ll need to have ‘relatively low’ level of consumer debt (relative to your overall situation). Consumer debt includes things like personal loans, credit cards, car loans and ‘Buy now pay later’ instalment debts like Afterpay or Zip.
• The borrower must be a first-home buyer and the property must be owner-occupied, so this deal is not available to those setting up an investment property portfolio. While this means you can’t split the mortgage four ways with flatmates, it does allow for one boarder or flatmate income (up to $250 per week) to help spread the cost.

Property criteria

The first restriction is that it must be a standard property type. Here’s what falls under that category:

• A freehold* residential property
• Freehold terraced housing, townhouse
• Apartment greater than 50sqm in area

So, lifestyle plots, tiny houses and properties on ‘leasehold’ or Māori land are out, unfortunately!

What else to consider? 

It’s now more common than ever for people to ‘pair up’ with friends or family members to save for a deposit and get on the home-ownership ladder, instead of buying owner-occupier property with a life partner. A combined income may also mean you stand to borrow more, as well as having someone to split the bills with!

While this co-ownership is becoming more common, it’s important to ensure you begin the journey with someone you trust and can have a good working relationship with. As always, honest communication is the key.

*Freehold means the person who buys the land owns the building and the land they sit on, and the property is free of any other interests - this might include a Crown entity or local iwi. A real estate agent must advise you when land is leasehold, rather than freehold.