Many first home buyers are entering the property market with less than a 20% deposit, highlighting how low-deposit lending rules are helping people purchase sooner.
First home buyers accounted for about 26% of property purchases in January, according to Cotality data reported by Trade Me. A significant share of those buyers relied on loan-to-value ratio (LVR) allowances that enable banks to lend to some borrowers with smaller deposits.
Cotality Chief Property Economist Kelvin Davidson said first home buyers (FHBs) were making the most of these rules.
“FHBs are certainly taking advantage, with around 57% of FHB loans in January being done at less than 20% deposit. Or put another way, nearly six in every 10 FHB loans are being approved at low deposit,” he said.
Low-deposit lending has become an important pathway into home ownership, particularly for buyers who may struggle to save the full 20% deposit required for standard mortgage lending.
How LVR rules work
Loan-to-value ratio rules are designed to manage risk in the banking system. For owner-occupiers, banks are allowed to allocate a portion of their lending to borrowers with deposits below 20%.
Currently, banks can lend up to 25% of their owner-occupier mortgages to buyers with deposits of less than 20%.
For first home buyers, these allowances can make a big difference. Instead of needing to save a full 20% deposit, some borrowers may be able to buy with deposits of as little as 10%, depending on the lender and the borrower’s financial position.
Many first home buyers also combine these loans with KiwiSaver withdrawals or first home grants to strengthen their deposit.
What buyers should keep in mind
While low-deposit loans can help buyers get into the market sooner, they also come with some additional considerations.
Borrowers with smaller deposits may face:
- Slightly higher interest rates or special loan conditions.
- The need to pay low-equity margins or fees.
- Stricter servicing requirements from lenders.
A smaller deposit also means a larger loan relative to the property value, which can increase the size of monthly repayments.
Despite these factors, low-deposit lending remains an important stepping stone for many households looking to buy their first property.
Thinking about purchasing your first home? Understanding how low-deposit lending works can make the process much easier. Contact us to review your borrowing capacity, explore your deposit options and guide you through the home loan process.
