Following several earlier OCR increases, major commercial banks also raised their mortgage rates, but this has made it harder for them to meet their lending targets. To attract more customers, several banks have quietly begun making moves behind the scenes, only to call an urgent halt after applications flooded in. Even so, it has to be acknowledged that borrowers with smaller deposits may now find it easier to get a mortgage.
Low-deposit mortgages are becoming more common
Under the Reserve Bank of New Zealand's loan-to-value restrictions, most buyers need a deposit of at least 20% of a home's asking price to secure a mortgage. However, buyers with deposits below 20% can still purchase a home through several different routes, and doing so is becoming easier.
One common approach is to buy a new build. Provided buyers meet the lending criteria, new builds can be exempt from the 20% deposit requirement, allowing buyers to put down just 10%. Other options include special bank offers, loans from non-bank lenders and the 5% deposit mortgage scheme administered by government housing agency Kāinga Ora.
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CoreLogics chief economist Kelvin Davidson said low-deposit lending accounted for 9.6% by value in the final quarter of 2022, up from 4% in the final quarter of 2021. He believes this means more owner-occupiers are considering new builds.
First-home buyers account for a large share of these figures. In the final quarter of 2022, 28% (1853) of first-home buyers purchased with deposits below 20%. Of the 33,203 new mortgage registrations by other owner-occupiers over the same period, fewer than 2% involved low deposits. According to Kāinga Ora, increasing numbers of first-home buyers are securing mortgages with 5% deposits through the First Home Loan or First Home Partner schemes.
Viewed another way, without separating first-home buyers from other buyers, total owner-occupier lending in the final quarter of 2022 was NZ$11,200,000,000. Of this, NZ$1,500,000,000 was low-deposit lending, representing 13.4% of the total. Davidson said: “Of that NZ$1,500,000,000, about NZ$1,100,000,000 was exempt from LVR rules, possibly because [the properties purchased] were new builds.”
One option is available only to those who qualify. Banks are permitted to allocate 10% of their total lending to so-called high-LVR loans, where borrowing can exceed 80% of a property's price. These loans are difficult to secure and are usually offered only to existing customers with substantial incomes.
Last year, 1473 homes were purchased using Kāinga Ora's First Home Loan scheme, which is designed for first-home buyers who can afford regular mortgage repayments but struggle to save a large deposit. Another 179 homes were purchased through Kāinga Ora's shared ownership scheme, First Home Partner.
Mortgage adviser Wills said advisers had previously been unable to assist with First Home Partner loans, but SBS Bank has now opened up this option.
Non-bank lenders are another option. iLender NZ adviser Jeff Royle said he had already arranged two 85% loans for first-home buyers through non-bank lenders this year. One buyer had a strong savings history but an impaired credit record. The second involved a self-employed couple whose property needed repairs, which banks would not finance. Royle said confidence was returning to the market, albeit slowly.
Banks quietly begin offering deals
In fact, some banks are becoming more flexible because they are failing to meet their mortgage lending targets. Westpac has quietly begun offering low-deposit mortgages to customers of other banks, something that would have been unthinkable last year.
Instead of making a public announcement, Westpac quietly communicated with mortgage advisers. Nevertheless, the bank received a flood of applications.
Mortgage adviser Stuart Wills, who runs a New Zealand first-home buyers' Facebook group with 59,000 members, said the move proved so popular that Westpac was forced to limit it to live transactions within days.
A Westpac spokesperson told OneRoof that the bank had received a large number of applications. It quickly reconsidered the policy and tightened it slightly. “Going forward, we will limit high-LVR applications to existing Westpac customers or applicants [from other banks] who have already signed a sale and purchase agreement.”
Other banks are also quietly offering deals through mortgage advisers. BNZ is reportedly offering a one-year fixed rate of 4.99%, while ANZ last week reduced its minimum household uncommitted monthly income (UMI) requirement from NZ$1600 to NZ$1300 per month.
Ryan Smuts, a director and mortgage adviser at Kris Pedersen Mortgages, said: “This basically means borrowers who previously did not have enough income to maintain a monthly UMI of NZ$1600 will now find it easier to get a home loan.”
For borrowers, the time when a small deposit can still fulfil the dream of home ownership may have arrived, provided you meet the various lending criteria and have a stable monthly income at the required level.