A growing number of first home buyers are stepping onto the property ladder with less than a 20% deposit, showing how low-deposit lending options are helping people buy sooner.
Data from Cotality, reported by Trade Me, shows that first home buyers made up around 26% of property purchases in January. A large portion of these buyers are using loan-to-value ratio (LVR) allowances, which let banks lend to some borrowers with smaller deposits.
Kelvin Davidson, Chief Property Economist at Cotality, explained that first home buyers are making the most of these rules:
“Around 57% of first home buyer loans in January were done with less than a 20% deposit. In other words, nearly six out of every ten first home loans are being approved at lower deposits.”
Low-deposit lending is becoming a key pathway for first-time buyers, especially for those who haven’t been able to save the standard 20% deposit required for a mortgage.
How Low-Deposit Lending Works
LVR rules are designed to manage risk for banks. For owner-occupiers, banks can lend a portion of mortgages to buyers with deposits below 20%.
Currently, lenders can offer up to 25% of owner-occupier mortgages to borrowers with deposits under 20%. For first home buyers, this can make a big difference. Some may be able to buy with deposits as low as 10%, depending on their financial situation and the lender’s policies.
Many buyers also boost their deposit using KiwiSaver funds or first home grants, making it easier to qualify for these loans.
Things First Home Buyers Should Consider
While low-deposit loans can help you get into the market sooner, there are a few things to keep in mind:
- Interest rates may be slightly higher or come with special conditions.
- Some loans include additional fees for smaller deposits.
- Lenders may have stricter income and repayment requirements.
A smaller deposit also means borrowing more, which can increase your monthly repayments.
Despite this, low-deposit lending remains an important step for many people buying their first home.
If you’re thinking about buying your first property, understanding how low-deposit loans work can make the process smoother. Let’s catch up and explore your borrowing options, review your deposit strategies, and guide you through every step of getting your first home.