Basically, banks won't lend the full amount for a house - you need to be able to put down a deposit, and the more the better. You may be familiar with 20% as the magic number, but the reality is if you're in a strong financial position we can work with as little as 5% deposit. Most people will need around 10% deposit, and if you can fork out a whopping 20%, you'll access the banks' most competitive rates and avoid low equity fees.
The banks' appetite for lending more than 80% has been increasing recently which is excellent for first home buyers. In January 2018 the RBNZ (Reserve Bank of New Zealand) loosened their rules, and then again in January 2019 to allow 20% of total lending for owner-occupied houses with less than a 20% deposit.
More recently in response to Coronavirus, the RBNZ decided to scrap LVR restrictions. As tempting as it is to think this would mean being able to buy with little (or no) deposit, the changes were made to accommodate mortgage deferrals if house prices fall and their clients end up with less than 20% equity. We talk more about that in this article.
If you're a first home buyer you can withdraw KiwiSaver contributions made by you and your employer to use as a deposit towards your new home if you meet these conditions:
In addition to KiwiSaver, if you earn less than $130,000 and are buying for less than $600,000 (or building new under $650,000) in Auckland, you may be eligible for a First Home Grant of up to $5,000 per borrower.
You can find out more about these options in our (aka your new bible).
The easiest and cheapest way to buy is using your parents to guarantee that part of your 20% deposit you don’t have.
Their guaranteed portion will be secured over their property or it can be secured over a term deposit, so you're not asking them to fork out cash, it's more like putting a 'hold' on their existing equity until you've paid that portion back.
In the event they use a term deposit as security, the term deposit stays in your parent’s name and they continue to earn interest on it. Guaranteed home loans are treated the same as loans under 80% so you get great interest rates, there are no fees, and you’ll even get a cash contribution from the bank. On an average loan size of $400,000 you will save around $10,000 using this option. Using a guarantor makes strong financial sense, even if you can go it alone.
Ask a Squirrel mortgage adviser about using our Homeowner's Loan as part of your house deposit.
Your parents need to be in a stable financial situation and still working (so ideally not retired on a sailboat, spending your inheritance).
If they want to know more about what they're signing up to and any potential risks, we're happy to chat! Just call us on 0800 21 22 30.
Every now and then the government recognises how blimmin' hard it is for first home buyers to get into the market, and introduces new ways to help out. We update our blog with any changes we think you should be taking advantage of, like these ones:All articles
We send a newsletter out every couple of months with the latest articles, which often includes news or tips for first home buyers. Sign up if you're keen to keep up to speed.