Since the Reserve Bank imposed the restriction on lending to people with less than 20% deposit in 2013 there has been a lot of changes in the options for first home buyers. As always, we are committed to finding the right solution so let's kick off with explaining the restrictions then we'll look at ways around them and how we can help.
What exactly are the deposit restrictions?
The Reserve Bank has imposed a restriction that a bank cannot lend more than 10% of their total home loans, to people with less than 20% deposit. Prior to these rules coming to place the banks were lending around double that to people with lower deposits.
What this means is that the banks are becoming picky about who they will lend to if they have lower deposit and the cost is increasing substantially with low equity fees and higher interest rates. Some banks are not lending to people with less than 20% deposit at all... but the good news is that we know a few ways around these rules.
How do we get around those restrictions?
There are four main ways we can give you the best shot at getting around those restrictions
- Present a very detailed and strong loan application - We pride ourselves on putting your best foot forward and presenting in a way that the banks want to approve you.
- Apply to different lenders - Your own bank might not have any ability to lend you money due to how close they are to their lending limits but we eliminate that risk by applying with all major banks if required
- Dealing with other lenders - The restrictions on deposit amounts only apply to the banks. We have a number of other lenders who can provide loans over 80% of the value of a property easily
- House and Land Packages - These are exempt from the deposit restrictions. We can work with you to find a solution which the banks will accept and is within your budget
To get a decent Home Loan you really need at least 10% deposit. There are some options with less than this but you need to be buying cheaply or earning a lot of money to make them work.
The good news is that you don't need to have 10% in cash. If you've got Kiwisaver then you may be able to use that as a deposit and you may also be eligible for the Homestart Grant which is free money from the government. Check out this previous post to learn more and also download the fact sheet at the bottom of this page which has an easy to read table on the options.
Still don't have 10% deposit? We can help with a savings plan or see how family may be able to assist you with buying this home.
What you need to know about borrowing with less than 20% deposit
There are a couple of extra hoops to jump through when you've got a lower deposit but we're here to guide you through the process and to make that as easy and as cost effective as possible.
Some common things to consider are...
- The bank will require you to get a Registered Valuation. This will cost around $600.
- There will be some sort of "Low Equity Fee" or higher interest rate. Generally up to 1% of your loan
- Most banks don't provide "cash back" at this level so you'll need to budget for lawyers costs. Normally around $1500 for a purchase
Hopefully this helps to clear things up and I'm sure there are lots of questions you may have. We're here to help so feel free to click the "contact us" tab at the top of the page and we can help to make a clear plan with you.
We've attached some helpful fact sheets below so feel free to download and share with anyone else who you think might find them helpful.
Remember our service is free - so get in touch for a chat
Adam, Claire and the My Mortgage team