One of the biggest myths in New Zealand property ownership is that you absolutely need a 20% deposit to buy a house. While 20% is the standard benchmark, it's far from the only option available to Kiwi home buyers.
The 20% Deposit Standard: Where It Comes From
The 20% deposit threshold exists primarily due to the Reserve Bank's Loan-to-Value Ratio (LVR) restrictions. These rules limit how many loans banks can issue with deposits below 20%, designed to maintain financial stability in the property market.
Deposit Requirements at a Glance
Understanding minimum deposit requirements helps you plan your home buying journey. Here's what different buyer types need:
| Buyer Type | Minimum Deposit | Typical Requirement | Additional Costs |
|---|---|---|---|
| First-Home Buyer (Welcome Home Loan) | 5% | 5-10% | Establishment fee, possible rate premium |
| First-Home Buyer (Mainstream Bank) | 10% | 10-15% | Low-equity premium (0.25-1% rate increase) |
| Owner-Occupier (Existing Homeowner) | 20% | 20% | None |
| Second-Home Buyer | 30% | 30-40% | Higher rates, stricter conditions |
| Investment Property | 40% | 40%+ | Highest rates, strictest LVR rules |
Minimum Deposit Requirements in NZ
For First-Home Buyers:
- Minimum 5% deposit with Welcome Home Loans (for properties under specified caps)
- Minimum 10% deposit with some mainstream banks
- Most banks require 10-15% for owner-occupiers
For Existing Homeowners:
- Generally 20% minimum deposit required
- Some flexibility exists depending on circumstances and bank policies
Low Deposit Options Available
Welcome Home Loans Government-backed scheme allowing first-home buyers to purchase with as little as 5% deposit on properties under regional price caps.
First Home Grant Up to $5,000 per person ($10,000 for couples) available to eligible first-home buyers, which can contribute toward your deposit.
Family Assistance Programs Some banks offer family guarantor loans or family springboard mortgages, where family members provide security to reduce your required deposit.
The Real Cost of Lower Deposits
Lenders Mortgage Insurance (LMI) When borrowing with less than 20% deposit, you'll typically pay LMI, which can add $3,000-$15,000+ to your costs depending on loan size and deposit amount.
Higher Interest Rates Low-equity loans often come with interest rate premiums of 0.25-1% above standard rates.
Welcome Home Loan Fees While offering lower deposits, these loans include a one-off establishment fee and sometimes slightly higher interest rates.
When 20% Makes Sense (And When It Doesn't)
Advantages of 20% deposits:
- No LMI costs
- Better interest rates
- More lender options
- Stronger negotiating position
When lower deposits work:
- Property prices rising faster than your savings rate
- Strong income security and serviceability
- Urgency to enter the market
- Using KiwiSaver that would otherwise be inaccessible
How to Buy a House in NZ With Less Than 20% Deposit
Purchasing a home with a smaller deposit requires careful planning and preparation. Follow these steps to maximize your chances of approval.
Step 1: Assess Your Eligibility Check if you qualify for Welcome Home Loans or First Home Grants. These government schemes have income caps and property price limits that vary by region. Visit the Kāinga Ora website to verify your eligibility based on your location and income.
Step 2: Maximize Your Deposit Access your KiwiSaver funds for your first home. You can withdraw your contributions (but not employer contributions or government contributions) after 3 years of membership. You must leave at least $1,000 in your account.
Step 3: Get Pre-Approved Apply for pre-approval from multiple lenders specializing in low-deposit loans. Compare their rates, fees, and conditions. Pre-approval shows sellers you're a serious buyer and helps you understand your true budget.
Step 4: Calculate True Costs Budget for LMI (if applicable), higher interest repayments, and reduced equity. Use a mortgage calculator to understand your weekly and monthly commitments, including rates, insurance, and maintenance costs.
Step 5: Strengthen Your Application Demonstrate consistent savings history over 3-6 months and ensure your income is stable and well-documented. Reduce existing debts and avoid new credit applications in the months before applying.
Step 6: Explore Family Support Options If needed, discuss guarantor arrangements or family springboard mortgages where relatives provide additional security. Understand the legal implications and ensure all parties receive independent legal advice.
Frequently Asked Questions
Q: What's the absolute minimum deposit to buy a house in NZ? A: First-home buyers can purchase with as little as 5% deposit through Welcome Home Loans, though 10% is more commonly the minimum with mainstream banks.
Q: Do all banks require 20% deposits? A: No. Banks must restrict low-deposit lending, but most still offer 10-15% deposit options for first-home buyers and owner-occupiers within their LVR limits.
Q: Is it worth waiting to save 20%? A: It depends on your circumstances. If property prices are rising faster than you can save, buying sooner with a lower deposit may make financial sense despite higher costs.
Q: Can I avoid lenders mortgage insurance in NZ? A: LMI isn't as common in NZ as in Australia. Instead, banks charge higher interest rates on low-equity loans. You'll avoid these premiums with a 20%+ deposit.
Q: What deposit do second-home buyers need? A: Second-home buyers and investors typically need minimum 30-40% deposits due to stricter LVR restrictions, though some exceptions exist.
Q: How much does a low-equity premium cost in New Zealand? A: Banks typically charge 0.25-1% above standard interest rates for low-equity loans. On a $500,000 loan, this could cost $1,250-$5,000 extra per year.
Q: Can I use my KiwiSaver as a house deposit? A: Yes. First-home buyers can withdraw their KiwiSaver contributions (excluding employer and government contributions) after 3 years of membership, leaving at least $1,000 in the account.
Q: What are the Welcome Home Loan price caps? A: Price caps vary by region. As of 2025, they range from $550,000 in some areas to $875,000 in Auckland. Check Kāinga Ora for current limits in your target area.
