But Loan Market mortgage adviser Michelle Isemonger told Nadine Higgins on The Prosperity Project podcast it can come at a significant cost.
Borrowers with less than 20% equity generally don’t qualify for banks’ discounted “special” mortgage rates and they also face a low-equity margin or fee.
“When you do have less than a 20% deposit, it is a bit harder,” she says “With a 5% deposit … they’re adding in a low-equity margin of up to 1.5%.”
That additional margin generally remains until the borrower’s equity reaches 20%, either by paying down the mortgage, the property’s value increasing, or both.
Eligible buyers can access Kāinga Ora’s First Home Loan with as little as a 5% deposit, although the scheme has income caps. Those who don’t qualify for that can still access banks’ own low-deposit lending products if they meet the lending criteria and the bank is within the Reserve Bank’s low deposit lending limits. But either way, borrowers face extra costs.
Despite that premium, Isemonger says many first-home buyers are still deciding it’s worth buying in a softer market. “Most of our clients at the moment are first-time buyers, so everyone is sort of going, ‘Well … might as well get into it now,’” she says.
“First-time buyers are getting some really good buys.”
She recently helped clients buy a home for about $1.1 million that the previous owners had purchased for around $1.5m in 2021.
But she says the decision shouldn’t solely come down to whether the bank is willing to lend you the money.
“What is your lifestyle going to look like when you purchase a property?” she says. “If someone’s going, ‘If I can’t go on a holiday every year, I don’t want to purchase a property … I don’t want to borrow that much’ – that’s completely fine.”
Watch or listen to the full episode of The Prosperity Project for more.
The Prosperity Project is hosted by Nadine Higgins, an experienced broadcaster and financial adviser.
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