Alex Zhao

Westpac reduced their home loan assessment rate back to 8.9% today. A welcoming change but still higher than ASB, BNZ, and KIWIBANK.

Home loan interest rates increased again across major lenders, but test rate remain unchanged. We also see certain lender adjusting their boarder income cap, which is a positive sign and may result in higher approval amount.

First home buyers – what are your options if you did not have 20% deposit?
Saving up 20% of purchase price for your first home is really hard, but there are multiple options available to let you get on to the property ladder for as low as 5% deposit. Let’s find out which one suits your situation.
Option 1: First Home Loan (FHL)
This is a Kainga Ora backed loan product that allow you to borrow up to 95% of the house value under the right circumstances. To be eligible, generally you need to have NZ residency, earn below the annual income cap for the past 12 months, and meet employment requirement. More details can be found in the following link.
First Home Loan :: Kāinga Ora – Homes and Communities (kaingaora.govt.nz)
This is the most recommended option as you can have discounted interest rate without low equity premium/margin added.
Good things about FHL:
• Can borrow up to 95% of LVR
• Normal discounted interest rates are usually offered by banks
Downsides of using FHL:
• Limited lender selection
• There is a 0.5% Low Equity Insurance Charge
• Registered valuation is compulsory
• Slow process as each application needs to be assessed by both the bank and Kainga Ora

Option 2: First Home Partner (FHP)
This is also backed by the government via Kainga Ora. Basically, the government is giving cash to let you have up to 25% deposit (they will contribute $200,000 max). In return, the government own the property together with you. You need to fully buy out government’s share in 25 years. Eligibility criteria for FHP is less strict when comparing to FHL, and you can find more information about this offer in the following website.
First Home Partner :: Kāinga Ora – Homes and Communities (kaingaora.govt.nz)
Good things about FHP:
• Government can contribute up to 25% of purchase price or $200,000 (whichever is lower)
• Eligibility requirements not as restrictive as FHL
Downsides of using FHP:
• Limited lender selection
• Government is owning a share of the property with you, which mean you may need to pay back more than what the contributed if house value increase in the future.
• Need to lodge applications to both Kainga Ora and Bank

Option 3: Standard High LVR loans
If none of the above options suits, you can also look into standard high LVR home loans. This option allows you to borrow up to 90% of house value. However, due to RBNZ speed limit rules, each bank’s quota for this type of loan is very limited and highly dependent on the number of under 80% loans they’ve written in the past month. Generally, you can only go to your own bank for this option, and the approval amount is normally much less than if you were applying for a standard home loan with LVR no higher than 80%.

Good things about Standard High LVR loans:
• It gives people who are not eligible for FHL and FHP an alternative option.
• Much less restrictions in terms of eligibility criteria when comparing to FHL and FHP.
Downsides of using Standard High LVR loans:
• High interest rate. Non discounted interest rates are offered and a margin is normally added on top. This could make interest rate 1-1.5% higher.
• Very high income-threshold for loan approval. Loan amount approved could be significantly less comparing to below 80% loan applications when the same income figure.
• Limited bank selection as you normally can only go to your own bank

So, if you are looking for a high LVR home loan option, it is recommended to check out FHL first, then Standard High LVR loans, and leave FHP as your last resort just to avoid the risk of having to repay more than the initial contribution to the government in the future.