20% Deposit... Is this the end for the First Time Buyer??

Should the First Time Buyer (FTB) wait because they don’t have a 20% deposit? NOT AT ALL! Yes ANZ, National, ASB & Sovereign have limited lending to 80%, but this doesn’t mean the end or, a hell of a long wait, for first time buyer in New Zealand. In fact, this is quite possibly a blessing in disguise! There are always exceptions to the rules and these exceptions are what I am going to uncover in this post.

There are still a couple of ‘mainstream’ lenders out there (at the time of writing) that will lend 95%. The key to this is that they require the 5%, to be genuine savings, and they require the ‘deal’ to be fairly squeaky clean; i.e. clean credit history, stable employment etc.

With the 20% deposit issue, if you are in the situation where you had only saved 5% or 10% and you were thinking that you had to save for another year, or worse, longer; don’t worry, I have a few suggestions, but I challenge you to think outside the square. Why not look at the following options to secure your new property:

1. Borrow the shortfall from a further mortgage on mum & dads property that you pay for (yes this can be done and is of no cost to mum & dad)
2. Get a personal loan for the shortfall
3. Secure the new purchase against mum & dads property (again, no cost to mum & dad and no, this is not the same as option 1)
4. See if the vendor will look at leaving in the shortfall
5. Delayed unconditional or settlement day to allow you to save for the shortfall (this will give you the immediate motivation & deadline to save, save & save some more)

Some of these options will depend on serviceability, but they are options that shouldn’t be ruled out if you are really serious about buying a property. We don’t know how long these lenders are going to keep their LVR’s limited to 80%; it might be years or it might be months. If you were to look at option 2 for example and hypothetically the lenders put their LVR’s back to the standard 90-95%, you could possibly refinance the personal loan into the mortgage or of course, repay that personal loan. Either way, it’s a good option if you can comfortably service both the mortgage & personal loan.
If you are a buyer in the current climate, I actually envy you, as I personally am tied up for another year or so. The interest rates are now well and truly in the 6%’s, another couple of months might very well see them into the 5%’s – so on that, don’t go fixing in any longer than 6 months right now if you do decide to buy. For the first time in years, buying an investment property with a 20% deposit is generally coming out cashflow positive - before tax. If you are buying your first home as opposed to a rental – you might find that you could even be paying less with a mortgage, than what you are currently renting for, if you had a couple of flatmates assisting you with ‘border income’.
If you have any questions/comments about any of the information in this post, I’d love to hear them so feel free to comment away.
Furthermore, if you would like to discuss your own personal mortgage situation, please get in touch as I’d love to help!