First home buyers may not need a 20% deposit

Saving a 20% deposit can be one of the biggest hurdles facing first home buyers – but some buyers may be able to purchase with considerably less.

One option is the First Home Loan scheme, which allows eligible buyers to purchase with a deposit of as little as 5%. The loans are issued by participating lenders and underwritten by Kāinga Ora, the government agency that provides and supports housing and home ownership services.

Buyers still need to meet the scheme's eligibility requirements and the lender's own lending criteria.

Ahead of the 7 November general election, there has also been discussion about increasing the First Home Loan income caps, which would potentially allow more buyers to qualify for the scheme. However, any changes would depend on the outcome of the election and subsequent policy decisions.

Affordability returns to long-term levels

The potential deposit hurdle also comes at a time when broader housing affordability has improved.

Cotality's latest housing affordability research found New Zealand's national value-to-income ratio had fallen to 6.7, matching its long-term average. The estimated time required to save a 20% deposit has dropped to 8.9 years, slightly below the long-term average of 9.0 years.

Mortgage repayments required to service a new loan have also fallen to 40% of gross household income, compared with the long-term average of 42% and a peak of 54% in late 2021.

Cotality Chief Property Economist Kelvin Davidson said that while housing was not cheap, lower property values, mortgage rates below their recent peaks and rising household incomes had returned affordability to more normal levels.

For first home buyers, the important point is that having less than a 20% deposit does not necessarily put home ownership out of reach. Different pathways may be available depending on your deposit, income and financial circumstances.

If you’re hoping to buy a home but are struggling to save a 20% deposit, you may have other options. Contact us to discuss your circumstances and find out whether buying with a smaller deposit could be possible.