What size deposit do you need to buy a house in NZ?

In this article:

• What’s a house deposit?
• What’s the minimum deposit on a house?
• Do you need a 20% deposit to buy a house?
• How does your loan-to-value ratio (LVR) affect your ability to buy a house?
• Where to get expert advice about financing your first home
• Can you use a mortgage adviser if you’re getting Kāinga Ora help?
• Tips for saving a house deposit

What’s a house deposit?

A house or home deposit, sometimes referred to as an 'equity deposit,' represents the portion of the property's purchase price that you contribute. For instance, if you aim to buy a $900,000 house with a 20% equity deposit, you'll need $180,000 of your own money. The remaining $720,000 of the purchase price is covered by the home loan.

Differentiating between the equity deposit and the purchase deposit can be confusing. The purchase deposit, typically 10% of the purchase price, is paid when you sign a sale and purchase agreement. It usually comes from your own funds and is due when the agreement becomes unconditional. If the sale proceeds as agreed, this purchase deposit becomes part of your equity deposit.

What’s the minimum deposit on a house?

The amount you’ll hear most often is 20%, however it’s possible to buy a home in New Zealand with a 10% or even a 5% deposit, depending on your circumstances. It’s also possible you might qualify for help from Kāinga Ora, as they offer first home loans. To see if you qualify for Kāinga Ora and/or KiwiSaver assistance, try the Kāinga Ora first home decision tool.

Scenario: David's 5% deposit homeownership journey with Kāinga Ora

If you qualify for a Kāinga Ora First Home Loan, you only need a 5% deposit. First Home Loans are provided by a specific group of banks and other lenders, and underwritten by Kāinga Ora. At the moment, participating lenders include Westpac, Kiwibank, The Cooperative Bank, SBS, Unity, NBS and NZHL.

David Patel, a 28-year-old software developer, had saved diligently for his first home while renting. Learning about Kāinga Ora's First Home Loan, David explored the option and secured pre-approval with a participating lender. With a 5% deposit of $27,500, he found a two-bedroom apartment for $550,000. His financing agreement included a 30-year loan of $522,500, a fixed interest rate of 6.65% for three years, and a monthly repayment of $3,355. With Kainga Ora's support, David achieved his homeownership goal. 

Scenario: Olivia’s 10% deposit homeownership journey with a non-bank lender

If you have a deposit of less than 20% and you don’t qualify for a Kāinga Ora First Home Loan, you can explore a low equity home loan. Generally, this means you’ll pay a higher interest rate or a ‘low equity fee’.

Olivia Smith, a 35-year-old graphic designer, has fallen in love with a three-bedroom home that’s on the market for $950,000 – but she’s pretty sure she can get it for $900,000. Olivia has a deposit of $108,000, which is 12% of the purchase price. Her mortgage adviser has found her a non-bank lender who’s offering a loan of $792,000 at an interest rate that’s 0.75% above their standard three-year fixed rate. All up, her low equity loan will cost 8% interest per annum. Her monthly repayments of principal and interest are $5,548 a month. Olivia plans to have two flatmates to help pay the mortgage. 

Do you need a 20% deposit to buy a house?

As we explained above, it’s possible to buy a home in New Zealand with a deposit that’s less than 20%. However, 20% or more is the ideal situation. Here’s why:

It makes you look more reliable: Having a 20% deposit (or more) signals responsible saving habits, painting you as an attractive prospect for a home loan.

It can give you access to preferential rates: With a 20% deposit you're likely to qualify for the banks’ advertised home loan rates, avoiding the need for higher rates to counterbalance the risks associated with a lower deposit.

It helps you to avoid fees: You can steer clear of low equity fees and your lender may waive the requirement for mortgage insurance*.

You’ll pay less interest in the long run: By contributing more upfront to the purchase, you'll ultimately pay less interest over the duration of your loan.

It minimises repayments: With a larger deposit, your fortnightly or monthly mortgage repayments become more affordable because you've borrowed less.

How does LVR affect your ability to buy a house?

Once you’re serious about buying your home, you’ll come across the term LVR, which stands for loan-to-value ratio. The LVR for a property you’re interested in is obtained by dividing the total mortgage amount by the property’s value. So if you want to borrow $800,000 for a property that’s valued at $1million, the LVR is 80% and your deposit equals 20% of the property’s value. If your LVR exceeds 80%, the mortgage is described as ‘high LVR’ or ‘low deposit’.

Where to get expert advice about financing your first home

While you probably have a relationship with one of the big banks, it’s a good idea to get independent advice before you apply for a home loan. That usually means working with a mortgage adviser, aka mortgage broker. As financial advisers, they are honour-bound to offer you the best advice for your situation.

Here’s a quick summary of what you’ll gain from working with a mortgage adviser:

• Expert guidance: Mortgage advisers offer advice tailored to your financial situation, helping you navigate the complexities of mortgage options, interest rates and terms.
• Access to a variety of lenders: They have access to a wide range of lenders, including banks and non-bank lenders, giving you more options to find the best mortgage deal.
• Less time and effort: Mortgage advisers handle the paperwork and negotiations on your behalf, saving you valuable time and effort in researching, comparing and communicating with different lenders.
• Personalised loan structuring: They help you choose a borrowing structure that aligns with your long-term plans.
• Potential cost savings: By leveraging their industry knowledge and negotiating skills, mortgage advisers may help you secure better interest rates and terms, potentially saving you money over the life of your mortgage.

Can you use a mortgage adviser if you’re getting Kāinga Ora help?

If you plan to get a helping hand from Kāinga Ora (First Home Loan), you can still work with a mortgage adviser.

“Your mortgage adviser can help you to work out whether you qualify for Kāinga Ora support. They can also help you to understand how much of your KiwiSaver savings you could put towards your deposit. And when you’re ready to go ahead, your adviser can make sure everything comes together smoothly.” - Kaushik Gorasia, Financial Adviser, MTF Finance Botany

Tips for saving a house deposit

• Explore the possibility of freelancing in your spare time, if permitted by your employment contract. A side hustle or weekend job can provide an additional income stream without interfering with your main job.
• Tap into your creative talents to produce and sell useful products or artworks online or at local markets.
• Sell assets that aren’t essential, especially if they cost money to maintain, i.e. boats and extra vehicles.
• Analyse your spending habits over a month. This can reveal areas where you're overspending and where you can cut back to save more effectively.
• Categorise your expenses, such as rent, groceries, utilities, transportation, dining out, clothing, hobbies and entertainment. This breakdown helps identify areas that could stand a trim.
• Use budgeting tools to create a realistic monthly spending plan. Adjustments can be made to maximise savings potential. Sorted has an excellent budget planner.
• Prioritise paying off any outstanding credit card debt promptly, as high-interest rates can limit your ability to save and impact your loan application. Consider using a debit card instead to control spending.
• Monitor your spending habits over several months to ensure you can stick to your budget.