Can I still buy my first home with a 5% deposit?

→ Reviewed by:

With the current perfect storm of rising cost of living and higher interest rates, it might be almost impossible to buy a first home with a deposit that’s less than 10% – unless you qualify for low income government assistance. Even with help from the government, the challenge can be affording the home loan repayments, particularly in areas like Auckland that have higher-than-average house prices.

However everyone’s situation is different, so we don’t want to paint a picture of doom and gloom. With careful planning it might be possible to reach the right balance between deposit size and repayment affordability. This article looks at the main options available, so you can identify a strategy that might work for you. Even if buying your first home doesn’t look doable right now, having a clear path to your goal can provide the motivation you need to get there.

First Home Loan

Most mortgage providers require a deposit of 20%. Anything less and they see an increased risk of not being able to recover their money if you can’t keep up with the repayments. Even if a lender thinks you can afford the repayments, they’ll cover their extra risk by charging a higher interest rate. It’s known as a ‘low equity margin’ (LEM) and is typically an extra 0.75%. Some non-bank lenders charge a one-off upfront fee instead or a combination of both. In addition, the Reserve Bank only allows a small percentage of banks’ new mortgages for existing homes to have a deposit of less than 20%. This restriction doesn’t apply to loans for new-build homes and apartments.

To help more people with a low deposit into their first home, the government created something called First Home Loan. These 5% minimum deposit mortgages are still provided by selected lenders, but Kāinga Ora removes their low deposit risk by underwriting the loans. That means there’s no higher interest rate or upfront fee just because it’s a low deposit mortgage.

Who is eligible for a First Home Loan?

The government has made this help available to people earning no more than a certain amount, called an income cap. If your income is over these limits there are other options, such as non-bank lenders, but they charge a higher interest rate. The maximum allowed incomes for the government-backed First Home Loan are:

  • $95,000 before tax if you’re an individual buyer
  • $150,000 before tax if you’re an individual buyer with one or more dependents
  • $150,000 combined income before tax for two or more buyers

You also need a deposit that’s at least 5% of the purchase price of the house you want to buy. And you have to be a first home buyer or in a financial position that’s typical of a first home buyer.

There used to be rules around how much the home could cost, but these price caps for First Home Loans were removed following Budget 2022. This has made a lot more homes available to First Home Loan buyers.

You’ll also need to meet the lender’s usual criteria, which is designed to ensure you don’t get into financial difficulty. Criteria are things like:

  • Your ability to make the repayments
  • Whether the loan is suitable for your situation and future goals
  • How you’ve managed money in the past
  • Whether you’re at least 18 years old

Finally, there are other general rules set by the government, such as:

  • You have to pay for lenders’ mortgage insurance (the premium is 0.5% of the loan) and any other fees the lender may charge, but these costs can usually be included in your loan
  • You’ll have to live in the home, so it can’t be an investment property
  • You can’t own other property, apart from Māori land
  • You must be a New Zealand citizen or permanent resident, or a resident visa holder who normally lives in New Zealand
Not all of the selected lenders will let you use a First Home Loan to build a new house, so be sure to check if that’s your intention.

How do you apply for a First Home Loan

First Home Loan applications are made to the selected lender directly, not Kāinga Ora. Each First Home Loan lender will help you to understand their latest affordability criteria, as well as the government’s rules. Once you’ve chosen a lender, they’ll help ensure your application is complete to avoid unnecessary delays.

You can apply for pre-approval, so you know the house price range you can look at. Once you’ve found a home you’d like to buy that seems to fit, you go back to the lender for final approval before going ahead. If you’ve already found a house that fits, you can just go straight to applying for final approval. See a list of Kāinga Ora First Home Loan lenders.

How to grow your deposit for a First Home Loan

There are several ways you may be able to increase your deposit to reach the 5% minimum, or build your deposit to more than 5% so your home loan and the repayments are something the lender sees as affordable.

The lender can explain these in more detail, but in the meantime here are some examples.

  • First Home Grant – also administered by Kāinga Ora, this government grant can give you $3,000, $4,000 or $5,000 depending on whether you’ve contributed to KiwiSaver for three, four, or five or more years. If you’re buying a new-build home the amounts double, which means the grant can be up to $10,000. If you’re buying a home with someone else, you can both apply for a First Home Grant. There are price caps for existing homes and new-builds in each region of New Zealand, so you can only use a First Home Grant to buy a home up to these maximum purchase prices. The maximum income rules for First Home Grants are the same as the ones for First Home Loans mentioned above.
  • KiwiSaver first-home withdrawal – if you’ve contributed to KiwiSaver for at least three years, you may be able to withdraw your savings to buy your first home. You just have to leave at least $1,000 in your KiwiSaver account.
  • Cash from family – you don’t have to save all of the deposit yourself. If someone wants to give you money towards your deposit, the lender may require them to sign a document to say it’s a gift and not a debt to be repaid. That way it won’t reduce the amount the lender thinks you can afford to borrow.

If you can get a 10% deposit together

If your deposit is 10% or more, options other than the First Home Loan might become available. This is even more likely if you’re considering a new-build home, or turn-key house and land package from a group builder.

With more options to explore, it helps to have an independent expert on your side. A good mortgage adviser (aka broker) knows what the various lenders are offering and can help you choose the best deal for your situation and future goals. Once you’ve chosen a lender, the broker will help you put your application together and keep working alongside you until you’re in your new home. Mortgage brokers are paid by the lender you choose to go with, so in most cases there’s no extra charge to you.

To help you find a good mortgage broker, we have a free Find a Broker service that connects you with a qualified and experienced mortgage adviser from our hand-picked panel.

What if you’re still not quite there?

If you can’t quite get the right deposit together, or you can’t yet afford the loan repayments on the type of house you need, all is not lost. It just means you might need a plan for the next 12 months or so, to get to where you need to be. A budgeting service or mortgage lender can also help you with this and may even check in every few months to see how things are going. If you can see how to get there in 12 months’ time, it can be incredibly motivating. Saving is easier when you can see the finish line.

IMPORTANT: 29/09/2023 – Due to recent unprecedented demand, the Kāinga Ora First Home Partner scheme is now fully subscribed and therefore they will not be accepting any new applications while they work through their commitments to those already in the scheme. Find out more here.

DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute a financial advice service. The article is only intended to provide education about the New Zealand mortgages and home loans sector. Nothing in this article constitutes a recommendation that any strategy, loan type or mortgage-related service is suitable for any specific person. We cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you. Before making financial decisions, we highly recommend you seek professional advice from someone who is authorised to provide financial advice.

Table of Contents
Want some help to get a home loan?

Let us introduce you to a mortgage adviser for advice that offers you the most benefits.

Today's Best Rates...
Keep up to date.

Subscribe and receive inside tips and useful advice.

Today's Best Rates...
Want some help to get a home loan?
Let us introduce you to an expert mortgage adviser for advice that offers you the most benefits.

Keep reading...

Subscribe and stay ahead of the game.

Our newsletter covers the latest market news including content from Tony Alexander, as well as tips for getting, managing and reviewing a mortgage. 

By clicking ‘Subscribe’ you agree to our Privacy Policy

Want some help to get a home loan?

Let us introduce you to a mortgage adviser for advice that offers you the most benefits.

Today's Best Rates...