What first home buyers need to know about deposits

Do you really need 20 percent to buy a property?

One of the most common questions buyers ask is whether a 20 percent deposit is essential to purchase a home. While it is often described as the gold standard, the reality is more nuanced. Many New Zealanders buy property with less than 20 percent, provided they understand the trade-offs and plan carefully.

Here is what you need to know about house deposits, low-deposit lending, and how to put yourself in the strongest position possible.

Why a 20 percent deposit is considered the benchmark

A 20 percent deposit significantly reduces risk for lenders, which is why banks tend to reward borrowers who reach this level.

With a 20 percent deposit, buyers typically gain access to lower interest rates, including the bank’s best advertised specials. You also avoid low equity fees, which can add thousands of dollars to the cost of a loan over time. Because you are borrowing less overall, your repayments are usually more manageable and you pay less interest across the life of the loan.

Starting with stronger equity also gives you more flexibility in the future, whether you want to refinance, renovate, or use equity to invest.

There is also a regulatory factor. The Reserve Bank of New Zealand restricts how much banks can lend to borrowers with less than 20 percent deposit. This makes low-deposit loans more competitive and harder to secure, even when your income is strong.

Buying a home with less than 20 percent deposit

Purchasing with less than 20 percent deposit is still very achievable, but it comes with additional considerations.

Buyers in this position are classed as low equity borrowers. Banks can only approve a limited proportion of these loans, which means stricter criteria and less flexibility. You are also likely to face higher interest rates and a low equity fee. This may be charged as a one-off cost or added as a margin to your interest rate to reflect the increased risk.

The key is preparation. Strong income stability, good credit history, and minimal personal debt can significantly improve your chances of approval.

Support options for first home buyers

For eligible first home buyers, there are specific pathways that can make buying with a smaller deposit possible.

The First Home Loan through Kāinga Ora allows eligible buyers to purchase with as little as a 5 percent deposit, subject to income caps and regional house price limits. This option can be a powerful stepping stone, but it requires careful navigation of eligibility rules and lender criteria.

KiwiSaver can also play a major role. If you have been contributing for at least three years, you may be able to withdraw most of your KiwiSaver balance to use towards your first home deposit. For many buyers, this forms the foundation of their deposit strategy.

Because these schemes involve detailed rules and documentation, seeking advice early can help avoid delays or disappointment later.

Four smart ways to grow your house deposit faster

Saving for a deposit can feel overwhelming, but clear strategies make a real difference.

Start by understanding your cashflow and automating your savings. A simple budget shows where your money is going, and automatic transfers to a dedicated savings account help make progress consistent and non-negotiable.

Reducing high-interest debt is equally important. Credit cards and personal loans reduce borrowing capacity and slow deposit growth. Paying these down can improve both your savings rate and your loan approval prospects.

Family support can also help when structured correctly. Whether it is a gift or a loan, banks usually require clear documentation to confirm how the funds will be treated. Getting this right protects both you and your family.

Finally, consider co-ownership. Buying with family or friends allows you to pool deposits and share costs. With the right legal agreements in place, co-ownership can help you enter the market much sooner than buying alone.

The right deposit strategy depends on you

Aiming for a 20 percent deposit is a strong financial goal, but it is not the only path to home ownership. For some buyers, waiting to reach that level makes sense. For others, a well-managed low-deposit strategy can be the right move.

The most important factor is having a clear plan. An experienced mortgage adviser can help you understand your options, assess your readiness, and build a roadmap that suits your circumstances.

If you are unsure where you sit or what your next step should be, getting advice early can make the process clearer and far less stressful.

For more information and to talk through how we can best help you, please contact us at info@krispedersen.co.nz or call the office at (09)4864719, and we can discuss what you want to achieve from there.

About the author: Kris Pedersen is a leading figure in mortgage advising and property investment, consistently ranked among the country's top six mortgage advisers for the past four years. With over a decade of experience, Kris is the preferred choice for investors seeking expert guidance to expand their portfolios. He shares his insights as a respected speaker at Property Investor Association groups, and his expertise extends to New Zealand and overseas property and finance markets, with regular features in NZ Property Investor Magazine. Kris Pedersen and Kris Pedersen Mortgages Limited are registered financial service providers, ensuring transparency and reliability in all financial dealings. Their credentials on the Financial Service Providers Register can be viewed here: https://fsp-register.companiesoffice.govt.nz/