First home buyers: Ways to get into your own home with just a 5% deposit

Written by Sunil Chandra - Squirrel mortgage adviser

**Article updated on 16th October, 2023**

If you’re on a mission to save for your first home, then you probably know all about the “golden rule” that applies when it comes to your deposit.

That’s the one which says that lenders will usually (not always) require you to front up with a deposit of 20% of the purchase price for an existing property – 10% if it’s a new build – before they’ll consider giving you a mortgage on it.

Even though house prices have been on a downward slope lately, you’re probably going to need six figures in savings to get over that threshold. And that’s a lot by anyone’s standard.

If you’ve been saving hard only to have your deposit goal feel like it’s getting further out of reach – or you just don’t want to have to wait years and years (and years) to get into your first home – there are options out there.

Option 1: Kāinga Ora’s First Home Loan

Kāinga Ora, the government agency formerly known as Housing New Zealand, has a few different programmes on offer to help give eligible Kiwi a leg-up into first-home ownership.

Kāinga Ora’s First Home Loan allows those eligible to buy with as little as 5% deposit, and the way it works is that Kāinga Ora acts as the underwriter on your home loan with the bank.

It will charge your lender a small fee (0.5% of the loan value) to insure the mortgage – and that fee is then passed onto you as the borrower and can be added to your loan.

That gives the bank the ability to fund loans that would usually sit outside their lending standards, down to as little as 5 per cent deposit.

What else do I need to know about the First Home Loan scheme?

As is the case with all of Kāinga Ora’s first home programmes, there are income caps that your household will need to fall under in order to be eligible.

For the First Home Loan scheme, within the previous 12 months, your total household income (before tax) must be:

• $95,000 or less if you’re an individual buyer without dependants
• $150,000 or less if you’re an individual buyer with one or more dependants
• $150,000 or less (combined) for two or more buyers, regardless of the number of dependants

There are a few other boxes you’ll have to tick in order to be eligible. You can book a chat with a Squirrel adviser to find out whether a First Home Loan is an option for you – or check out Kāinga Ora’s website for more info.

Option 2: Kāinga Ora’s First Home Partner Scheme

IMPORTANT NOTE: As of 29th September 2023, Kāinga Ora isn't currently accepting new applications for the First Home Partner scheme, due to high demand. 

Kāinga Ora's First Home Partner scheme is basically designed to fill the gap if the size of your deposit, plus what the bank is willing to lend you, isn’t enough to get you into a home that ticks the boxes you need it to.

As long as you’ve got at least a 5% deposit saved – and meet all the other eligibility criteria – Kāinga Ora will contribute up to $200,000 or 25% of the purchase price of the property, whichever is lower.

Whatever Kāinga Ora contributes will then be considered by your lender as forming part of your deposit.

The really important thing to note is that the First Home Partner programme is a shared ownership scheme, which means that Kāinga Ora will co-own the property with you – at least at first. Part of the deal is that you’ll be required to meet with Kāinga Ora regularly to work out a plan for you to buy back its share of the property.

What else do I need to know about the First Home Partner scheme?

The big one is that your household income will need to be beneath a certain threshold in order for you to be eligible.

As of 14^th August 2023, the threshold has been increased to $150,000, from $130,000 – and the same cap applies regardless of whether there’s one borrower, or up to six borrowers in the same household.

As mentioned earlier, you’ll also need at least a 5% deposit saved towards the property – which can come from a combination of bank savings, KiwiSaver, a Kāinga Ora First Home Grant, and gifts from family.

Other stuff you need to know:

• The scheme is available on both existing properties, and new builds or off-plan purchases – giving you more choice. Existing properties must only need minimal work or maintenance done (up to $5,000) to be eligible.
• Your Squirrel mortgage adviser can manage your First Home Partner applications to certain banks – but others will require you to manage your application directly via a branch, or one of the bank’s mobile mortgage managers.
• If you haven’t bought back Kāinga Ora’s share of your home after 15 years, Kāinga Ora will begin charging you an annual admin fee to cover any reasonable costs it has incurred.

You can find out more about the First Home Partner Scheme and full eligibility criteria on the Kāinga Ora website – or get in touch to chat with a Squirrel adviser.

Option 3: Squirrel’s Launchpad Loan

If your household income sits above the Kāinga Ora caps, Launchpad might be an option for you.

We’ve designed it specifically for first home buyers who have good, solid income but haven’t quite managed to save up that 20% deposit required by the banks.

With Launchpad, you need as little as a 5% deposit (depending on the purchase price) – we’ll top you up to 20% with a Squirrel loan, funded via our term investment platform, then the remainder of your mortgage will be funded through one of our non-bank partners.

Interest rates are slightly higher with Launchpad than they would be with one of the main banks, but the up-side to that is you’ll be in your first home a lot sooner!

Your Squirrel adviser will get you set up so you’re working to pay your Squirrel loan off first, then once you’ve built up enough equity in the property, you can refinance to main bank lending for more competitive rates.

What else do I need to know?

Although we can fund loans for borrowers with as little as 5% deposit, the amount you’ll need to front up will change depending on the value of the property you’re wanting to buy. As a general rule, anything over about $800,000 will require a bigger deposit.

There are a few other criteria you’ll need to meet in order to be eligible – and you can book a chat with one of our adviser team to understand whether Launchpad could be an option for you.

To find out more about Launchpad – or to start your application – check out our website.

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The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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