Options for Home Buyers with Low Deposits
For many aspiring homeowners, the challenge of saving for a substantial deposit can be a major barrier to entering the property market. Fortunately, there are several options available for those with lower deposits, making homeownership more accessible. This article explores various pathways for buyers with low deposits, highlighting the opportunities and considerations involved.
Understanding Low Deposit Mortgages
A low deposit mortgage allows buyers to purchase a home with less than the traditional 20% deposit. This can significantly reduce the time needed to save and enable buyers to enter the market sooner. However, it’s important to be aware of the potential trade-offs, such as higher interest rates and additional fees.
Government-Backed Schemes
Several government initiatives are designed to assist first-time buyers with low deposits:
First Home Loan
The First Home Loan scheme, supported by Kāinga Ora, enables eligible buyers to secure a mortgage with as little as a 5% deposit. This is particularly beneficial for those who meet specific income and property price criteria. A key advantage of this scheme is that some or all of the deposit can be gifted by family members, providing additional flexibility.
First Home Partner
This shared ownership scheme allows buyers to purchase a brand-new home with Kāinga Ora. While the buyer is the majority homeowner and occupier, Kāinga Ora retains a share in the property, which the buyer can purchase over time. However, it’s worth noting that this scheme is currently fully subscribed.
Kāinga Whenua
Designed to assist Māori in achieving homeownership, the Kāinga Whenua Loan Scheme secures loans against the house only, rather than the house and land. This can be a viable option for those building on multiply-owned Māori land.
Bank Offerings and Alternative Lenders
Many banks offer low deposit mortgage options, often with specific conditions:
Kiwibank
Kiwibank offers loans with a 10% deposit, subject to loan-to-value ratio (LVR) restrictions. This option is available for those purchasing a recently constructed home or building a new property, known as a turnkey home.
Westpac
Westpac provides various low deposit options, including leveraging KiwiSaver savings and combining funds with family or friends. They also support shared ownership programmes, allowing buyers to enter the market with just a 5% deposit.
Using KiwiSaver for Your Deposit
KiwiSaver is not only a retirement savings scheme but also a valuable resource for first-time homebuyers. After contributing for at least three years, members can withdraw funds to put towards their home deposit. This can significantly boost savings and reduce the time required to accumulate a deposit.
Co-Ownership and Family Assistance
For some, co-owning a property with family or friends can be a practical solution to overcoming deposit challenges. This approach allows multiple parties to pool resources, making it easier to meet deposit requirements and share the financial responsibilities of homeownership.
Family assistance, whether through direct financial support or leveraging equity in a family-owned property, can also play a crucial role in helping buyers secure a home. It’s essential to seek independent advice to ensure that all parties understand the implications and responsibilities involved.
Considerations and Risks
While low deposit mortgages offer a pathway to homeownership, they come with certain risks and considerations:
- Higher Interest Rates: Lenders often charge higher interest rates for low deposit loans, reflecting the increased risk. Additionally, a Low Equity Margin (LEM) may apply, further increasing the cost of borrowing.
- Market Fluctuations: As seen in recent market trends, property values can fluctuate, potentially leading to situations where the home’s value falls below the mortgage amount. Buyers should be prepared for such scenarios and consider their long-term financial stability.
- Eligibility and Criteria: Each scheme and lender has specific eligibility criteria, which may include income limits, property types, and other conditions. It’s crucial to thoroughly research and understand these requirements before proceeding.
For home buyers with low deposits, a range of options exists to facilitate entry into the property market. From government-backed schemes to innovative bank offerings and family support, there are multiple pathways to explore. By understanding the opportunities and potential risks, buyers can make informed decisions that align with their financial goals and circumstances. As always, seeking advice from financial experts and mortgage specialists can provide valuable guidance in navigating these options.