Low-Deposit Lending Options for Your Clients

For many New Zealanders, saving a 20 percent deposit while paying rent and managing the rising cost of living is a significant hurdle. The good news is that there are structured pathways to support borrowers who are not yet at the standard deposit threshold. As a broker, understanding these options in detail - and being able to explain them clearly - is central to helping first home buyers and others with limited deposits find a workable path forward.

The Reserve Bank's LVR Restrictions

New Zealand's lending environment for low-deposit borrowers is shaped significantly by the Reserve Bank's loan-to-value ratio (LVR) restrictions. These rules limit how much of their new lending banks can extend to borrowers with deposits below 20 percent. The specific limits and any exemptions to them are updated periodically, so brokers should stay current with the RBNZ's most recent guidance.

Under current settings, a proportion of each bank's new lending can go to owner-occupiers with deposits below 20 percent, but the volume is constrained. This means lenders may have limited appetite for high-LVR loans at certain points in time, even when a client otherwise qualifies. Understanding each lender's current capacity in this segment is part of effective lender selection for these clients.

The First Home Loan Scheme

The First Home Loan scheme, administered through Kainga Ora and available through participating lenders, allows eligible first home buyers to borrow with a deposit as low as five percent without paying a low-equity premium. The scheme is designed for buyers whose income falls within defined thresholds and who meet other eligibility criteria including the requirement to live in the property.

Brokers working with first home buyer clients should familiarise themselves with the current income caps, house price caps by region, and the requirements around KiwiSaver contribution history. These thresholds are updated periodically and vary by location. Confirming eligibility before presenting the scheme as an option avoids raising expectations that cannot be met at the lender stage.

KiwiSaver First Home Withdrawal

Most first home buyers who have been contributing to KiwiSaver for at least three years can withdraw their member contributions and investment returns toward a deposit. This is separate from the First Home Grant (which has its own eligibility criteria) and can provide a meaningful boost to the deposit amount. Brokers should prompt clients to check their KiwiSaver balance and contribution history early in the process, as the withdrawal takes time to process.

It is worth noting that the KiwiSaver withdrawal must generally be used as part of the settlement payment rather than held as a buffer. Clients sometimes have a different expectation of timing or how the funds will be applied, so clarifying this early avoids confusion at settlement. The scheme rules are administered through Inland Revenue and the client's KiwiSaver provider, and the specific process varies slightly between providers.

Low-Equity Premiums and Their Effect on Affordability

Where a low-deposit loan does not qualify under an exemption or scheme, most lenders will apply a low-equity premium (also called a low-equity margin) to the interest rate. This is an additional margin applied to reflect the increased risk to the lender, and it typically reduces once the borrower's equity reaches a certain threshold - often 20 percent. Brokers should factor this premium into the serviceability calculation and ensure clients understand that the rate they start on may not reflect the longer-term cost once equity is established.

Some clients are surprised to learn that the path to removing the margin requires either paying down the loan or experiencing sufficient property value growth - and that the latter is not guaranteed. Setting this expectation clearly at the outset builds trust and ensures clients are making a genuinely informed decision about whether to proceed with a low-deposit purchase or wait and save further.

Supporting Clients to Make Informed Choices

Low-deposit lending decisions involve trade-offs that are worth working through with clients carefully. At Chaperone, our tools help brokers model different scenarios side by side so clients can see the real cost of different deposit levels, structures, and timing choices. Helping a client understand their full range of options - and the implications of each - is one of the most valuable things a broker can do at this stage of the buying journey.