The 5% First Home Deposit – Myth Or Truth?

By Lighthouse | July 18, 2022 | 5 Min read

The 5% First Home Deposit – what is it

Not many people seem to know, but there are products on the market whereby you ‘only’ need a 5% deposit. We say ‘only’ because if you are buying a $800,000 house you still need a $40k deposit and if you’re buying on your own that’s still a big chunk of money for one person to save.  

With the 5% deposit First Home Loan, effective 1st June 2022, you can now purchase a property for any price, and still only need a 5% deposit. These changes give first home buyers a better chance of being able to buy a property at a realistic price that actually reflects the current market.

How do you qualify?

Only selected banks offer this loan product, and it is underwritten by Kainga Ora, so there are some specific criteria that apply:

  • You have to be a first home buyer, and you have to live in the property
  • For a single applicant you have to earn $95,000 or less
  • For a joint application, you have to earn a combined income of $150,000 or less
  • For a single applicant with dependents, also $150,000
  • You have to have been in the same job for at least 12 months. If you haven’t, you need to evidence 2 years of employment history in the same industry

It is important to note that income is based on the previous 12 months, not the previous tax year or current income – so if you are lucky enough to have recently received a pay rise that takes you over those income caps, you may still qualify.

What could you be borrowing?

For an individual

This will vary on a case-by-case basis as everyone’s financial position is different, but if we assume:

  • $95,000 salary
  • Average cost of living
  • No other debts (no personal loans or credit cards)
  • Contribute 3% to KiwiSaver

You could borrow in the region of $600k  – add in a boarder, so you have a friend living with you, this could go up to around $630k

For a couple

This will vary on a case-by-case basis as everyone’s financial position is different, but if we assume:

  • Joint income of $150,000
  • Average cost of living for 2 adults
  • No other debts (no personal loans or credit cards)
  • Contribute 3% to KiwiSaver

You could borrow in the region of $900k  – add in a boarder, so you have a friend living with you, this could go up to around $930k

What if the bank says that you can’t afford to borrow the loan amount you need?

There are other options available, such as the First Home Partnership, which is a shared equity scheme – to be covered off in another episode. Contact our mortgage team to talk through that in more detail.

How can you obtain that 5% deposit?

All deposit funds can be fully gifted, so if you’ve got family that are willing to gift you the deposit, this will qualify. You can also use KiwiSaver and the First Home Grant if you qualify under their criteria. Some banks will still offer discounted interest rates and cash back – this is usually unheard of when you are borrowing 85/90%, let alone 95%. This is typically a couple of thousand dollars, so can help towards legal fees or moving in costs etc.

Interested? Here’s what you need to do

Get a pre-approval application underway – they are valid for 60 days and doing this now will protect you against any future tightening of bank policy that might come into play in that time. 

If you have signed a contract – act now! Due to increased demand for this product, banks are experiencing longer lead times for assessing applications – most people have a 10 working day finance condition in their contract and it is taking most banks this amount of time to assess the applications. If you can get a 15 day finance condition, even better. 

The application has to be presented ‘’fully packaged’’ – so this means you have to be able to evidence all deposit, income, etc upfront – you cannot say ‘’I will have saved another $10k by the time the property settles’.

Only selected banks offer this product so it would pay to talk to an adviser to gauge which bank would work best for you – remember advisers do this day in day out, so they know how to present a really strong application to the bank. 

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