For lots of would-be first-home buyers, the prospect of a deposit is a huge hurdle.

Loan-to-value restrictions limit how much banks can lend to people who do not have 20% deposit. But 20% of a median-priced house is about $150,000.

That may be why news that BNZ is open to applications for home loans from existing customers who only have a 5% deposit attracted attention at the weekend.

So what are your options if you don’t have a 20% deposit?


While banks are careful about the lending they do to people with less than 20% deposit, it does still happen. They are allowed to give 15% of their new lending to people with a smaller deposit.

In December, $531 million was lent to people with less than 20% deposit. Of that, $424m went to first-home buyers.

Brokers often say that it is easier to get a loan when you get to 10% deposit, and a step easier again at 15%. But the bank will still need to be confident that you can afford to repay any home loan you take out.

David Cunningham, chief executive at Squirrel, said high interest rates were a constraint on this sort of lending because people would have to be able to afford test rates of about 9%. They loan they needed would also be larger because they were borrowing more of the purchase price.

Mortgage adviser Glen McLeod, of Edge Mortgages, said the deal would usually need to be live if a borrower had a small deposit – with an offer made and accepted subject to finance. Sometimes people applying to a bank they were already a customer of would be able to get a preapproval if they had a deposit of about 10%.

He said for a very low deposit situation, a borrower would have to have very strong income. You would also need to have limited other debt.

When you buy with a lower deposit, you usually can’t access banks’“special” cheaper interest rates, and you may also pay a low-equity fee or premium.

First Home Loan

If you meet the income criteria, you could apply for a First Home Loan.

These require you to have income of less than $95,000 as an individual or $150,000 if you have dependents or are buying with someone else.

The loans are administered by Westpac, Kiwibank, The Co-Operative Bank, SBS, Heartland Bank, Unity, Nelson Building Society and NZHL.

You still have to pass the bank’s own checks but the loans are underwritten by Kainga Ora, which means you can apply when you only have 5% deposit.


Kainga Ora’s First Home Partner scheme stopped taking new applications last year because of “unprecedented demand”.

But there are other ways. Aera and You Own are private schemes that offer something similar – you put in a deposit and then the scheme invests enough to get you to a 20% deposit.

It’s really important to get independent advice before you go down these routes, though, so you understand the implications of someone else having a stake in your house. There are usually regular fees involved and rules about how you go about buying the scheme’s stake.

Second-tier lenders

Banks aren’t the only lenders that deal with home loans. You can also get one from a second-tier lender. Because they are not directly bound by the loan-to-value restrictions that affect banks, they sometimes have more appetite for lower loan-to-value lending, but they generally charge higher interest rates.

Sometimes, people having trouble getting a mainstream loan go with a second-tier lender for a while with a view to refinancing when things improve – maybe the property increases in value or their business has been around in future. It’s important to understand the risks to this strategy, though. A mortgage adviser could be a help.