Not all property buyers face the same deposit requirements in New Zealand. The Reserve Bank's LVR restrictions create dramatically different rules for first-home buyers, existing homeowners, and property investors.
Understanding LVR Restrictions
The Loan-to-Value Ratio determines how much banks can lend relative to a property's value. The Reserve Bank sets speed limits on how many high-LVR loans (low deposits) banks can issue, with different rules for different buyer types.
Deposit Requirements by Buyer Type
Understanding who needs what deposit helps you plan your property journey effectively. Here's a comprehensive breakdown:
| Buyer Type | Minimum Deposit | Typical Deposit | LVR Allowance | Market Access |
|---|---|---|---|---|
| First-Home Buyer | 5-10% | 10-20% | 20% of lending | High |
| Existing Owner (Moving) | 20% | 20-30% | Same as FHB | Medium |
| Existing Owner (Keeping Property) | 30-35% | 35-40% | 5% of lending | Low |
| Property Investor | 30-35% | 35-40% | 5% of lending | Low |
First-Home Buyer Deposit Requirements
Minimum Deposits:
- 5% with Welcome Home Loans (properties under caps: Auckland $875,000, elsewhere $650,000)
- 10% with most major banks for standard home loans
- 15% increasingly common as banks tighten lending
LVR Allowances: Banks can lend up to 20% of their new owner-occupier lending to borrowers with less than 20% deposit, giving first-home buyers more access to low-deposit loans.
Additional Support:
- First Home Grant: up to $10,000 for couples ($5,000 for individuals)
- KiwiSaver withdrawal for deposit
- Welcome Home Loan criteria are income and house-price based
Existing Homeowner Deposit Requirements
Moving House: When selling and buying simultaneously, existing homeowners typically need:
- 20% deposit for new purchase if no equity from current home
- Can use equity from existing property as deposit for next home
Upgrading:
- If retaining current property, treated as investor purchase
- Minimum 30-40% deposit required
Property Investor Deposit Requirements
Minimum Deposits:
- 35% for Auckland investment properties
- 30% for investment properties outside Auckland
- Some banks require up to 40% depending on risk assessment
Strict LVR Limits: Banks can only allocate 5% of new lending to investors with less than 35-40% deposits, making low-deposit investor loans extremely rare.
Existing Property Owners: When purchasing investment property, equity in your home can count toward deposit requirements, but total LVR across all properties must meet bank criteria.
Why the Difference?
The Reserve Bank imposes stricter requirements on investors to:
- Reduce speculative property investment
- Improve first-home buyer access
- Manage housing market stability
- Reduce financial system risk
Special Circumstances
New Builds: Some banks offer small deposit concessions (5% reduction) for new builds, applying to both owner-occupiers and investors.
Bank Assessment Factors: Beyond minimum deposits, banks consider:
- Income stability and level
- Credit history
- Existing debts
- Savings track record
- Property type and location
How to Navigate Deposit Requirements as a First-Home Buyer
First-home buyers have the most flexible deposit options but still need strategic planning to maximize their chances.
Step 1: Calculate Your Maximum Budget Determine how much you can borrow based on your income and deposit. Most banks use a debt-to-income ratio of 6-7 times your annual household income. Factor in that lower deposits mean higher repayments due to larger loan amounts.
Step 2: Check Welcome Home Loan Eligibility Visit the Kāinga Ora website to verify if you meet income caps and whether properties in your target areas fall under the price caps ($875,000 in Auckland, $650,000 elsewhere). This could reduce your required deposit to just 5%.
Step 3: Maximize Your KiwiSaver Withdrawal After 3 years of KiwiSaver membership, you can withdraw your contributions (but not employer or government contributions) for your first home. You must leave $1,000 in your account.
Step 4: Apply for the First Home Grant If you meet eligibility criteria, apply for up to $5,000 (individuals) or $10,000 (couples). This directly boosts your deposit without requiring additional savings.
Step 5: Build Your Savings Track Record Banks want to see consistent savings over 3-6 months. Even if using KiwiSaver, demonstrate you can manage money by regularly saving additional funds.
Step 6: Get Pre-Approval from Multiple Lenders Different banks have different appetites for low-deposit lending. Apply to at least 2-3 lenders to compare rates, fees, and deposit requirements.
How to Secure Investment Property Financing
Property investors face steeper requirements but can leverage existing equity strategically.
Step 1: Assess Your Current Equity Position Calculate the available equity in your existing property. You'll need your property's current value minus your outstanding mortgage. Most banks allow you to access up to 80% of your property value.
Step 2: Determine Total Deposit Required For Auckland properties, you need 35% of the purchase price. Outside Auckland, it's 30%. Calculate whether your equity plus cash savings meets this threshold.
Step 3: Get Your Properties Valued Obtain updated valuations on existing properties to understand your true equity position. Banks will conduct their own valuations, but knowing your position helps planning.
Step 4: Structure Your Lending Correctly Work with a mortgage adviser to structure your loans optimally. This includes deciding whether to cross-securitize properties or keep lending separate.
Step 5: Prepare Your Financial Documentation Investors need comprehensive documentation: rental income evidence, property expenses, tax returns, and proof of other income sources.
Step 6: Consider New Build Concessions New builds may qualify for slightly lower deposits (around 25-30% instead of 30-35%). Explore new developments in your target investment areas.
Making the Numbers Work
First-Home Buyer Example:
- Property price: $750,000
- 10% deposit: $75,000
- KiwiSaver contribution: $30,000
- First Home Grant: $10,000 (couple)
- Required savings: $35,000
- Additional costs: $15,000-$20,000
- Total funds needed: $50,000-$55,000
Investor Example:
- Investment property: $650,000
- 35% deposit: $227,500
- Equity from home: $180,000
- Additional cash needed: $47,500
- Additional costs: $15,000-$20,000
- Total cash needed: $62,500-$67,500
Strategic Implications
For First-Home Buyers: Lower deposit requirements mean faster market entry, but ensure you can service the larger loan and associated costs. Consider whether waiting to save a larger deposit would give you better rates and lower repayments.
For Investors: Higher deposit requirements mean you need more cash savings, significant equity in existing properties, or a longer savings timeline before investing. The 5% LVR allowance means competition for low-deposit investor loans is intense.
Frequently Asked Questions
Q: Can first-home buyers get away with 5% deposits? A: Yes, through Welcome Home Loans if you meet income criteria and buy under the price caps ($875,000 Auckland, $650,000 elsewhere).
Q: Why do investors need such large deposits? A: Reserve Bank LVR restrictions limit high-risk lending, and investment property lending is considered higher risk than owner-occupier lending.
Q: If I own my home, what deposit do I need for an investment property? A: Typically 30-35% of the investment property's value, though you can use equity from your existing home to meet this requirement.
Q: Do the rules change often? A: Yes, the Reserve Bank reviews LVR restrictions regularly (typically every 6-12 months) and adjusts them based on economic conditions and housing market activity.
Q: Can I use gifts from family toward my deposit? A: Yes, genuine gifts are acceptable, though banks will require documentation. Loans from family typically cannot be counted as genuine deposit.
Q: What happens if I'm an existing homeowner who wants to move house? A: If you're selling your current home and buying another to live in, you're treated as an owner-occupier and need 20% deposit. You can use equity from your current home.
Q: Are deposit requirements different for apartments versus houses? A: Banks may require higher deposits (typically 5-10% more) for apartments, particularly those under 50 square meters or in buildings with specific issues.
Q: Can I combine equity and cash for my investment property deposit? A: Yes, most investors use a combination of equity from their family home and cash savings to meet the 30-35% deposit requirement for investment properties.
