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Buying with Less than 20% Deposit?

Banks Relaxing Income Criteria

When you are buying a home, and you have less than a 20% deposit, banks will need to loan above 80% of the purchase price to help you get into a home. This is known as a "Low-Equity" loan (also called 'High LVR' or 'Above 80% Lending'). Typically, because the bank is taking more risk on scenarios like this (because they're lending a greater proportion of the purchase price or property value) they have stricter lending criteria.

One of the main areas where it is difficult is that; all-else-being-equal, if you had the same actual loan amount (for example $500,000), a bank would require you to have a greater surplus of funds (after expenses had been deducted from your income) if the loan was greater than 80% of the purchase price, versus if it was equal to, or less than 80% of the purchase price.

In the last week, a couple of banks have become more relaxed on this criteria. For example, ASB typically would require you to have a $1,000 per month surplus (known as a UMI - Uncommitted Monthly Income) if your loan was at 90% of the purchase price. This is basically calculated at your net income, minus your expenses, minus the proposed mortgage costs (at a stress testing rate that banks use). However, this week they have reduced that figure down to $850. This doesn't sound large, but is the difference in some people being able to get a loan at all, and others being able to borrow slightly more than before. ANZ have also mentioned that their current thresholds for above 80% lending are something they may be a little more lenient on, than being stuck to a figure without exceptions.

In summary - if you're looking at buying a home with less than 20% deposit, it may be easier now than it was a few weeks ago, so get in touch!

For more information on Above 80% Lending - check out our other blog here.

Kainga Ora First Home Partner

The Kainga Ora First Home Partner Scheme is currently fully subscribed. This means they are not taking on any further applications at this stage, and their comments on this are below:

"First Home Partner is a shared ownership scheme that has helped hundreds of aspiring first-home buyers purchase a home since October 2021.

Due to recent unprecedented demand, this scheme is now fully subscribed and therefore we will not be accepting any new applications while we work through our commitments to those already in the scheme. We will shortly be contacting current applicants to confirm the status of their application."

However, if you're in a situation where you are looking at buying and were considering First Home Partner, don't think that you're stuck and no longer have options. Get in touch and we can work with you to figure out a path forward for you and help you achieve your goals.

Ryan Smuts
6 October 2023