Forget saving a 20% deposit — large numbers of first-home buyers are getting into the market with much smaller levels of savings.
Cotality, formerly CoreLogic, has released its latest data, which includes Reserve Bank figures showing that 44% of all first-home buyers had less than a 20% deposit in March and first-home buyers were responsible for 78% of all low-deposit borrowing by owner-occupiers.
Banks can lend 20% of their new lending to owner-occupiers with less than 20% deposit or equity.
Reserve Bank data shows that in March there was $947m of lending to borrowers in that position, just $24m of which was to investors.
That’s a significant increase from March 2023, when there was just $510m in lending to borrowers with less than 20%, and last March, when there was $584m.
“First-home buyers, basically, have the monopoly on low-deposit lending allowances at banks,” CoreLogic property economist Kelvin Davidson said.
“Owner-occupiers further up the ladder may not need low-deposit finance as much, so that’s part of it, but I also think to some extent that the banks have been sort of reserving those speed limits for first-time buyers.
“For quite a while now we’ve seen about 75% or 80% of all low-deposit lending to owner-occupiers in general has been to first-home buyers.
“About two in every five first-home buyers, or even a bit more than that, are entering with a low deposit.”
He said some buyers might not even be aware it was an option.
“Some people might be out there thinking ‘gee I don’t have the required 20% so I can’t buy a house’, but actually there are allowances there and a lot of it goes to first-home buyers.
“I think if you want to get into the market with a reduced deposit there probably is capacity — the speed limits overall aren’t really being tested.
“The speed limit there is 20% [of new lending] but only about 12% is going out at low deposit… then other tests come into it.”
He said KiwiSaver was also helping.
In April, 3970 people withdrew their KiwiSaver funds for a first-home purchase, up from 3320 in April 2024, with a total of $167.3m withdrawn.
Mortgage adviser Glen McLeod, head of Link Advisory, said borrowers with less than a 20% deposit were able to access interest rates from about 4.99% to 5.59%.
“Those who qualify for a Kāinga Ora First Home Loan can access these same rates with as little as a 5% deposit, though a 0.50% fee applies.
“When the deposit is under 20%, most lenders apply a low equity margin, which is typically tiered based on the loan-to-value ratio.
“These margins vary by lender, but we’re starting to see some shift in the market — one major bank has recently removed these margins altogether, offering a standard rate and a discounted rate for borrowers with more than 20% equity.”
He said it was noticeable that more applications were including income from boarders.
“Whether it’s friends helping with mortgage payments or adult children moving back home, many buyers are looking for ways to improve affordability.
“In some cases, income from secondary dwellings or granny flats is also factored in, where accepted. It’s a reflection of how people are adapting to meet lending criteria in a challenging environment.”
Adviser with Loan Market Karen Tatterson said a first-home buyer with ASB who had a 10% deposit would pay the advertised interest rate plus a 0.75 low-equity margin.
“As an example, their one-year rate would be 5.7%.
“ANZ, who do not charge a low-equity margin, apply their standard rate so for first-home buyer at 90%, their one-year rate would be 5.59%.”
She said all the banks were also offering $5000 cash contribution for a first-home buyer.
Overall, Davidson said the market continued to steadily become more active.
Sales were up 4% compared to a year earlier in April, taking activity to 7% above the historical normal for this time of year.
“Sales activity has been on a steady incline, and we’re now starting to see this translate into home values,” Davidson said.
The Cotality Home Value Index rose 0.3% in April — the fourth consecutive monthly increase — although growth remains modest.
Among the main centres, Hamilton and Christchurch led the gains, while Dunedin, Wellington and Tauranga showed flatter results.
“Despite these signs of improvement, the market remains tilted in favour of buyers,” Davidson noted.
He said the outlook for the rest of the year was for moderately increasing prices and activity.
“We’re expecting a moderate upswing, with national property values forecast to rise around 5% for the year,” he said.
“Lower mortgage rates will be a key driver. But we’re also watching the wider economy, the labour market, and the impact of lending restrictions, particularly debt-to-income limits.”
rnz.co.nz
