🏠HOUSE DEPOSITS EXPLAINED: Do You Really Need 20% to Buy a Property?

The 20% Deposit "Gold Standard": Why It Matters

Having a 20% deposit positions you as a lower-risk borrower in the eyes of the banks. This isn't just a label; it unlocks tangible benefits:

Access to Better Interest Rates: You'll often be offered the bank's best "special" rates.
No Low Equity Fees: You avoid the significant extra costs that come with low-deposit loans.
Lower Repayments: A smaller loan means more manageable monthly payments and less interest paid over the long term.
More Financial Flexibility: You start with a solid equity position, giving you more options down the track.

Currently, banks are also restricted by the Reserve Bank on how much they can lend to borrowers with less than 20% deposit, making these loans harder to secure.

The Reality of Buying with Less Than 20%

If your deposit is under 20%, you're considered a "low equity" or "low deposit" borrower. This path is still very possible, but it comes with a different set of rules and challenges:

LVR Restrictions: Banks have a strict quota and can only allocate a certain percentage of their new lending to low-deposit borrowers. This creates fierce competition for limited funding.
Higher Costs: You may face slightly higher interest rates and will almost certainly have to pay a Low Equity Fee (LEF). This is a one-off fee or an ongoing margin added to your interest rate, designed to cover the bank's increased risk.

Key Pathways for Low-Deposit Buyers

For first-time buyers, there are dedicated schemes to help you get on the ladder sooner:

The First Home Loan (Kāinga Ora): This allows eligible buyers to purchase a home with as little as a 5% deposit. It comes with specific income caps, but it’s a powerful option. Find out more here.
KiwiSaver Withdrawal: If you've been contributing to KiwiSaver for at least three years, you may also be eligible to withdraw most of your KiwiSaver to use towards a first home purchase.

Navigating the criteria for these schemes can be complex, so getting advice early is essential.

4 Smart Strategies to Boost Your Deposit

Saving for a deposit can feel like a huge challenge, but a clear strategy makes it achievable. Here are 4 high-impact tips:

Master Your Cash Flow & Automate Savings: Create a simple budget to see where your money is going, then set up an automatic transfer to a high-interest savings account on every payday. Making savings non-negotiable is the fastest way to build your deposit.
Eliminate High-Interest Debt: Lenders look at all your existing debts. Focus on paying off high-interest loans (like credit cards and personal loans) to improve your borrowing power and free up more cashflow for saving.
Leverage Family Support (The Right Way): A gift or loan from family can be a massive help. It’s important to document this correctly with a formal gifting declaration or a loan agreement to ensure it meets the bank's requirements and protects everyone involved.
Explore Co-Ownership: Teaming up with family or friends to pool your deposits together is a modern and increasingly popular strategy. With a solid legal agreement in place, co-owning can get you onto the property ladder years sooner than if you try to do it alone.

Your Strategy is Key

While aiming for a 20% deposit is a smart financial goal, it's not the only way to achieve homeownership. The right path for you depends entirely on your situation.

An experienced Mortgage Adviser can help you create a personalised roadmap - whether that’s a plan to reach a 20% deposit faster, or a strategy to navigate the low-deposit lending landscape with confidence.