In a nutshell:
- National is proposing to lift the income caps for the Kāinga Ora First Home Loan scheme—which enables first home buyers to borrow up to 95% of the value of a home—to $300,000.
- The current income caps are $95,000 for an individual borrower, or $150,000 for an individual with dependents or a household (all pre-tax).
- The loans are written by banks, who test affordability as the primary measure. A 'backstop' for the lender comes in the form of a low equity insurance premium of 1.2%, which enables Kāinga Ora to manage the risk of default.
- While 5% deposit loans do carry a risk of borrowers going into negative equity (the size of the mortgage being greater than what the home is worth), owning a home is a long-term proposition, and negative equity can arise with or without the First Home Loan framework.
- Squirrel's view is that the existing income caps are too low, so the proposed lift would be a positive for first home buyers—helping to further Kiwi homeownership levels, which have been gradually rising this decade after three decades of decline.
Two months out from the election, and the campaign promises have started coming pretty thick and fast.
One of the latest: a pledge from National to deliver some big changes to Kāinga Ora’s First Home Loan scheme, making it possible for more first home buyers to get onto the property ladder with as little as a 5% deposit.
Let’s take a look at the proposed changes and how they stack up.
First, a quick refresher—how does the Kāinga Ora First Home Loan scheme work again?
The First Home Loan scheme has been around for a wee while now—designed specifically for borrowers with decent incomes, but who (for whatever reason) just haven’t quite been able to get the standard 20% deposit together.
(At this stage, it’s worth noting that most banks will lend up to 90%, or higher, outside of the First Home Loan scheme.)
The scheme allows eligible buyers to purchase a property with as little as a 5% deposit saved.
First Home Loans are arranged through select banks and credit unions, and underwritten by Kāinga Ora. It’s that Kāinga Ora backing which allows lenders to offer these 5% loans, which would otherwise sit outside their usual lending criteria. Kāinga Ora effectively charges the borrower a 1.2% fee to insure the mortgage, which can be added to their mortgage balance.
There are a few eligibility criteria borrowers need to meet in order to qualify for the scheme:
- Be earning under the income caps (before tax)
- $95,000 or less for an individual buyer without dependents
- $150,000 or less for an individual buyer with one or more dependents
- $150,000 or less (combined) for two or more buyers—with or without dependents.
- Have a minimum 5% deposit saved—from KiwiSaver or as genuine savings in the bank.
- Must be a NZ Citizen or NZ Permanent Resident.
- And you have to be a first home buyer, or a previous home owner that is in a similar financial position to a typical first home buyer.
So, what changes are being proposed?
National’s talking about dramatically increasing the First Home Loan income caps to a blanket $300,000 per year (before tax)—regardless of the number of borrowers or dependents.
Essentially, the move is about widening the door to more borrowers who can genuinely afford a mortgage, but who are either struggling to save for a deposit, or caught by the tighter restrictions banks otherwise apply to low-deposit lending.
It would also make support available for buyers looking to purchase in higher-value markets like Auckland, Wellington and Tauranga—where you typically need a higher income in order to meet mortgage servicing requirements.
Would the changes open the floodgates on risky lending?
To be clear, low deposit does not = low quality.
While First Home Loan borrowers are exempt from standard LVR and debt-to-income restrictions, they still have to pass all the same credit and affordability checks (income, expenses, debt, credit history, etc.) as any other mortgage borrower, to show that they can comfortably service the loan.
It’s not about lowering standards—or letting people borrow more than they can afford. It’s about reducing that initial deposit hurdle to help people get into their first home faster.
As an aside: roughly 94% of the first home buyers Squirrel’s helped into a home over the last 12 months fell below the Reserve Bank’s owner-occupied debt-to-income threshold of six times income. Given Squirrel’s scale, it’s a pretty representative sample, and suggests that first home buyers aren’t generally overextending themselves.
The way the First Home Loan scheme works also has decent protections built in for our financial system—namely in the form of that 1.2% insurance premium that’s applied to every First Home Loan.
Kāinga Ora self-insures the risk, and as of June 2025, there was about $71 million sitting in the associated insurance reserve. That’s a decent buffer.
What we’re talking about here is nothing like the NINJA (No Income, No Job, No Assets) loans that were rife in early-2000s America, and helped trigger the GFC, where lenders just didn’t bother to check whether the borrower could afford the loan or not.
Are there any risks involved?
From a borrower perspective, the main risk comes during periods of falling house prices.
If you’ve bought with a 5% deposit, and house prices fall by more than 5%, you could end up in negative equity i.e. where your house is worth less than what you owe on your mortgage.
Now, as long as you can still afford your loan repayments—and you plan on staying in the house for a few years, until prices have bounced back again—being in negative equity (while it might not feel great) doesn’t actually mean a whole lot.
It’s when falling prices coincide with periods of high unemployment (i.e. a severe recession) that things get nasty. People lose their jobs, can’t keep up with the mortgage, and are forced to sell their homes into a falling market—effectively locking those losses in.
It’s happened before (though a long time ago): during the Great Depression, when New Zealand home ownership fell from roughly 61% in 1926, to 51% in 1936.
That's the scale of event we’re talking about here, not the usual 5% or 10% wobble in house prices we see every few years.
Is there enough demand to justify the move?
As I’ve said before, it’s a goldilocks time to be a first home buyer—and the numbers over the last few months suggest that people are keen to make the most of the opportunity.
In July 2026, first home buyers made up around 29% of all residential property purchases in New Zealand, well above the long-run average of around 21–22%.
So, the desire to own a home is clearly there. What’s getting in the way for a lot of would-be buyers isn’t their ability to service the mortgage, it’s scraping together the deposit in the first place.
A change like this would be positive for the bigger picture, hopefully helping to nudge up homeownership numbers in New Zealand after a long period of falling home ownership over the last few decades.
After peaking at almost 74% in 1991, homeownership numbers slid backwards, bottoming out at around 64.5% in 2018. They’d recovered to 66% in 2023, and the strength of first-home buyer activity since then suggests we’re probably sitting nearer 67% now.
A change like this would lean into a recovery that's already under way, rather than trying to force one that isn't.
So, are the proposed changes a good idea?
To be clear, this isn't a political endorsement of National—it's an assessment of whether this specific proposal stacks up. And on balance, I think yes.
While the First Home Loan, as it stands, has the makings of something great, the current income caps are too low and too limited for it to have a wide-reaching positive impact.
Raising the cap to $300,000 would open it up to most young Kiwis wanting to buy in New Zealand, helping more of them into their own homes sooner—and that sounds pretty good to me.
Footnote
The proposal is similar to what operates in Australia, though over the ditch there are no income caps. Instead, they apply price caps on the property purchased (eg. $1.5 million in Sydney). New Zealand’s First Home Loan scheme had the price caps removed a few years ago. In Australia there is no mortgage insurance on their version, so their government is bearing the risk. Either way, in both counties, affordability is the key test applied.
About the author: David Cunningham, Chief Squirrel
With more than three decades of senior experience across New Zealand’s financial services sector, David knows the world of banking and finance inside out. He's not afraid to call it like he sees it (all part of our fight for a fairer financial system) which is why he's a regular media commentator on matters relating to the economy, housing market, mortgages, saving and investing, and interest rates.