How does the size of your deposit affect how much you can borrow?

Once you have a clear indication as to how much you’re able to pull together as a deposit, it’s time to start figuring out how much you’ll be able to borrow from the bank. Loan to Value ratios (LVRs) limit what the banks are able to lend toward the purchase of a home, and work differently depending on your unique circumstances. You can use our LVR calculator to the right to see what your LVR is likely to be.


Scenario 1: Contributing 20% equity or greater toward your purchase

That’s the equivalent of a $100,000 deposit to purchase a $500,000 property. There are many benefits to putting in at least a 20% deposit toward your first home. Most importantly, the banks will be able to offer you their “Special” interest rates, which are their lower advertised rate. You’ll also avoid any Low Equity Premiums, which are an extra margin added to the interest rate if you are deemed to be a higher risk borrower (one with a low deposit relative to house price).


In all cases, if you can afford to, putting in at least a 20% deposit is recommended. It’s the best way to avoid many restrictions the banks put on other purchasers, and get the best interest rates.

Scenario 2: Contributing between 10% and 20% toward your purchase

Not everyone is able to contribute the full 20% toward their first home purchase. This doesn’t mean you’re out of options. In fact, there are still plenty of great ways to get a foot in the door. You’re just going to have to get a little more creative, and tick a few more boxes to get things right.


The government have encouraged lenders to take on the Welcome Home Loan scheme, which works in conjunction with the Homestart Grant. If you’re eligible for one, you’ll also be eligible for the other, and only need to contribute a 10% deposit toward your purchase.


When applying with a smaller deposit, the banks are required by the government to charge you a “low equity margin”, or some variation of this, which is a cost to the purchaser that’s charged as the lending is deemed to be higher risk.


ASB, ANZ, BNZ, Westpac, all charge this premium, but may apply it in slightly different ways. You can read more about Low Equity Premiums Here.


As an indication, the ANZ uses the following method for charging a “Low Equity Premium”


If you were to purchase a $500,000 property with a 10% deposit, you’d be in line for an LEP charge of $3,375. This needs to be factored into your costs when considering a purchase.


If you’re going to be putting in less than a 20% deposit, most of the banks also require you to have relatively stronger incomes. For example, a home-buyer looking to borrow $500,000 with a 20% deposit would only be required to have around $100,000 in income, while someone with only a 10% deposit would need closer to $110,000.


Contributing Less Than 5%-10% toward the purchase of your home

While it is still possible to purchase a property with only a 5% deposit in New Zealand, it’s difficult to achieve in reality. All banks in New Zealand are only allowed to lend a small amount to low deposit holders, which makes the competition for this lending fierce.

The banks will also expect you to have exceptional circumstances supporting your case. For example, you’ll need to have a great job paying you a great salary, with good prospects for salary growth. For example, an accountant, lawyer, or doctor in the early stages of their career.