Owning your own home is a significant aspiration for many individuals and families in New Zealand. However, turning this dream into a reality often comes with challenges and complexities, particularly for first home buyers. In a rapidly evolving real estate market, and with a legal landscape that can be daunting, it is important to be aware of the processes involved and the issues that you may encounter along the way.
This article provides guidance around obtaining funds for your deposit.
Deposit and KiwiSaver
Most banks currently require a first home buyer to have a deposit of at least 20%. Saving tens of thousands of dollars for your deposit can be a tough ask but you may already be closer than you think!
Provided you intend to live in the property you are buying for at least six months, first home buyers who have been contributing a minimum of $1,000.00 annually to their KiwiSaver for at least three years can withdraw almost all money in their KiwiSaver (leaving at least $1000.00). KiwiSaver can be used to pay the deposit to the Vendor (upon going unconditional) or can be used at settlement.
First Home Loan
You may also qualify for a First Home Loan which is a type of loan issued by select banks and underwritten by Kāinga Ora. You only need a 5% deposit for the property to qualify for this lending rather than the 20% deposit usually required. There is no house price cap for this initiative, but there is an income cap which differs depending on your circumstances.
Low Equity Margins
Equity is the difference between the market value for your property and the amount owing on your home loan. For example, if you purchase a property for $500,000 and you have a deposit of $50,000 and a loan for the balance ($450,000), your equity is 10%. Where your equity is less than 20%, the bank will add a low equity margin to the interest rate you pay. This is typically between 0.25 and 1.5% per annum.
The equity you have in your property will increase as you repay the principal sum of your home loan or if the value of your property increases (through improvements or an increase in market value). Due to this, it is important that you review your home loan from time to time if a low equity margin has been applied to your loan.
