Buying your first home in New Zealand can be an exciting yet overwhelming experience. With rising property prices and strict lending criteria, many aspiring homeowners are left wondering if they can ever achieve their dream of owning a home. The good news is that there are numerous programs and strategies available to help first-time buyers navigate this complex landscape.

In this article, we’ll explore five essential aspects of the first home buying journey in New Zealand, providing you with the knowledge and confidence to make informed decisions as you embark on this important milestone. 

1. Understanding the First Home Loan Scheme

The First Home Loan, is a game-changer for many aspiring homeowners. This government-backed initiative, underwritten by Kāinga Ora, allows eligible first-time buyers to purchase a home with just a 5% deposit, compared to the standard 20% required by most lenders.

How it works:
Let’s say you’ve found a lovely starter home in Wellington priced at $600,000. Instead of needing to save $120,000 for a 20% deposit, you’d only need $30,000 with a First Home Loan. This significant reduction in the deposit requirement can shave years off your saving timeline.

Eligibility criteria:

• Be a New Zealand citizen, permanent resident, or a resident visa holder who is “ordinarily resident in New Zealand”
• Your income in the last 12 months must be $95,000 or less for a single buyer, or $150,000 or less for two or more buyers
• You must not currently own any property
• The home must be for you to live in, not an investment property

You can find all the qualifying criteria and other relevant information about First Home Loan here

Important considerations:
While the lower deposit is attractive, remember that you’ll be borrowing more. This means higher monthly repayments and more interest paid over the life of the loan. You’ll also need to pay additional Lender’s Mortgage Insurance premium, which protects the lender if you default on the loan (if applicable).

2. Maximizing Your KiwiSaver First Home Withdrawal

Your KiwiSaver account can be a powerful tool in your first home buying arsenal. After three years of contributing, you can withdraw almost all of your KiwiSaver savings to put towards your first home purchase.

How it works:
Imagine you’ve been diligently contributing to your KiwiSaver for five years and have accumulated $25,000. You can withdraw all but $1,000 of this amount to use as part of your deposit. If you have a partner who’s also been contributing, you can combine your withdrawals for an even larger deposit.

Key points to remember:

• You must leave at least $1,000 in your KiwiSaver account
• The home must be your primary residence for at least six months
• You can only make one first home withdrawal from your KiwiSaver

Pro tip: Even if you’re years away from buying, increasing your KiwiSaver contributions now can significantly boost your future deposit. Consider bumping up your contribution rate if your budget allows.

3. Navigating Loan-to-Value Ratio (LVR) Changes

Recent changes to LVR restrictions have opened up new possibilities for first home buyers. As of July 1, 2024, banks can now offer high LVR lending (over 80%) to 20% of their new lending, up from the previous 15%.

What this means for you:
These changes increase your chances of securing a mortgage with a smaller deposit. However, it’s important to note that banks still have their own lending criteria and may require you to demonstrate strong financial stability.

Example scenario:
Sarah and Tom have saved a 10% deposit for a $700,000 home in Auckland. Previously, they might have struggled to find a lender willing to offer them a 90% LVR loan. With the new rules, more banks may be willing to consider their application, increasing their chances.

4. Exploring Shared Equity Schemes

Shared equity schemes are gaining traction in New Zealand as an innovative way to help first home buyers enter the market. These programs involve a third party, often the government or a community housing provider, taking a share in the property to reduce the amount you need to borrow.

How it works:
Let’s say you want to buy a $500,000 home. A shared equity scheme might contribute 25% ($125,000), meaning you only need to secure a mortgage for $375,000. You’d own 75% of the property, with the scheme owning the remaining 25%.

Benefits:

• Lower deposit requirement
• Smaller mortgage and lower monthly repayments
• Opportunity to buy in areas you might otherwise be priced out of

Considerations:

• You’ll need to buy out the scheme’s share eventually, usually within a set timeframe
• Any increase in the property’s value will be shared proportionally with the scheme

While not as widespread as in some countries, shared equity schemes are worth investigating, especially if you’re struggling to meet deposit or income requirements for traditional mortgages.

5. Choosing Between Fixed and Floating Rates

In the current economic climate, deciding between fixed and floating mortgage rates is a hot topic for first home buyers. Each option has its pros and cons, and the right choice depends on your individual circumstances and market predictions. You can read our detailed article on Fixed and Floating rates here.

Fixed rates:

• Provide certainty in your repayments for a set period
• Can be beneficial if interest rates are expected to rise
• May have break fees if you want to change your loan during the fixed term

Floating rates:

• Offer flexibility to make extra repayments without penalties
• Can be advantageous if interest rates are expected to fall
• May result in changing repayment amounts as rates fluctuate

Example Scenario:
Jack and Emma are buying their first home and are torn between a 2-year fixed rate at 5.99% and a floating rate currently at 6.25%. They decide to split their loan, fixing 70% for certainty and leaving 30% floating for flexibility. This strategy allows them to benefit from rate stability while maintaining the ability to make extra repayments on the floating portion.

Expert tip: Consider talking to one of our mortgage broker who can provide insights into current market trends and help you make an informed decision based on your financial situation and goals.

Embarking on your first home buying journey in New Zealand may seem overwhelming, but with the right knowledge and strategies, it’s an achievable goal. Remember to thoroughly research your options, seek professional advice, and take advantage of the various schemes and initiatives available to first home buyers.

By understanding the First Home Loan scheme, maximizing your KiwiSaver withdrawal, navigating LVR changes, exploring shared equity options, and making informed decisions about your mortgage structure, you’ll be well-equipped to take that exciting step onto the property ladder.

Happy house hunting!