You'd Be Surprised: You Don't Always Need a 20% Deposit to Buy in New Zealand
Here's something that stops a lot of would-be homeowners in their tracks: the belief that you need a 20% deposit — and that if you don't have it, you simply can't buy. It's one of the most persistent myths in the New Zealand property market, and it's keeping good people on the rental treadmill longer than they need to be.
The truth? A lot of purchasers are getting into homes right now with less than 20% down. Some are doing it with just 5%. Let's talk about how.
Where Did the "20% Rule" Come From?
The 20% deposit threshold comes from the Reserve Bank of New Zealand's Loan-to-Value Ratio (LVR) restrictions. Banks are regulated on how much of their lending they can do to "high LVR" borrowers — that is, people borrowing more than 80% of a property's value.
It became real-estate folklore, passed down from parents to kids, even though modern lending and government support have quietly changed the rules. Yes, 20% is still the gold standard — it gets you the best rates, the lowest fees, and the most lending options. But it's no longer the only way in.
Option 1: The Kāinga Ora First Home Loan — Just 5% Deposit
This is the big one. The Kāinga Ora First Home Loan is a government-backed scheme that lets eligible first-home buyers purchase with as little as 5% deposit. Kāinga Ora underwrites the loan, which means participating banks can lend to you even though you fall outside their usual high-deposit standards.
To put that in perspective: on a $600,000 home, a 5% deposit is $30,000 — versus $120,000 at 20%. That's a very different savings target.
Who qualifies?
To be eligible, you generally need to:
Be a New Zealand citizen, permanent resident, or resident visa holder ordinarily residing in NZ
Be a first home buyer (or a previous homeowner now in a similar financial position to a first-time buyer)
Have a gross income from the last 12 months of:
$95,000 or less if you're a single buyer without dependants
$150,000 or less if you're a single buyer with dependants, or buying with one or more others
Have at least 5% genuine deposit (this can include KiwiSaver savings and gifted family funds)
Intend to live in the property as your primary home
There are no house price caps — a significant change in recent years, meaning you can use the scheme anywhere in the country.
What does it cost?
There's a Lenders Mortgage Insurance (LMI) premium of 1.2% of the loan amount, which can be added onto your loan rather than paid upfront. Some participating lenders — like Kiwibank and SBS Bank — also offer their competitive interest rates to First Home Loan customers, meaning you may not pay the higher "low equity margin" that standard low-deposit borrowers often face.
Participating lenders include ASB, Westpac, Kiwibank, The Co-operative Bank, SBS Bank, Unity Money, and NZHL.
Option 2: Standard Bank Low-Deposit Lending — 10% Deposit
Even outside the First Home Loan scheme, some banks will lend with as little as 10% deposit — subject to LVR restrictions and a strong application.
Banks have a limited allocation for high-LVR lending (lending above 80%), so these spots are competitive. You'll typically need:
A clean credit history with excellent account conduct
Stable income and employment
A strong surplus after all expenses are accounted for
A registered valuation of the property (usually required for purchases below 20% deposit)
The catch here is cost. When you borrow above 80% of a property's value, banks apply a Low Equity Margin (LEM) — an additional percentage added to your interest rate. This can range from 0.25% to 1.5% depending on the lender and your LVR. It stays in place until your equity reaches 20%, at which point you can ask your bank to review and remove it.
Option 3: KiwiSaver — Turbocharge Your Deposit
If you've been in KiwiSaver for at least three years, you can withdraw most of your balance (you must leave $1,000) to put toward your first home deposit.
This can be a game-changer. For many buyers, their KiwiSaver balance alone gets them to — or very close to — the 5% or 10% threshold needed to apply. It can be combined with personal savings and even gifted funds from family.
Note: The First Home Grant (which previously offered up to $10,000 in additional support) was discontinued on 22 May 2024. KiwiSaver withdrawal and the First Home Loan remain the two key government-backed tools for first-home buyers.
Option 4: Family Gifts
Banks in New Zealand do accept gifted deposits from family members — parents gifting funds toward a child's home purchase is common practice. The bank will require a signed letter confirming the gift is non-repayable (not a loan), along with evidence of where the funds came from.
Combining a family gift with KiwiSaver savings is a proven path to reaching that 5% or 10% threshold.
Option 5: Shared Ownership Products
For buyers who earn too much to qualify for the First Home Loan but haven't been able to build up a 20% deposit, there are also private shared equity products to be aware of.
Squirrel's Launchpad: Designed for good earners with at least 5% saved. Squirrel tops up your deposit to 20%, with the rest funded through a lending partner. You buy the whole property and pay off the top-up component over time.
YouOwn: You buy the portion of the property you can afford, YouOwn co-invests the rest. You pay an equity charge on their share and can buy them out over time.
These aren't right for everyone, but they do show that the market is evolving to serve buyers who fall between the cracks.
So What Does the "Extra" Cost Actually Look Like?
Buying with less than 20% typically costs more in two ways:
A higher interest rate via the Low Equity Margin (LEM) — usually between 0.25% and 1.5% added to your rate until you hit 20% equity
Lenders Mortgage Insurance — 1.2% of the loan amount if you're using the First Home Loan scheme
Are these worth it? For many buyers, absolutely — especially in a market where waiting longer to save a larger deposit means buying the same house for more money later. Getting on the ladder earlier, starting to build equity, and no longer paying rent all have real financial value that can outweigh the short-term cost of a low equity margin.
The Bottom Line
The 20% deposit rule is a benchmark, not a barrier. Depending on your income, savings, and circumstances, you may be able to buy with as little as 5% — and thousands of New Zealanders are doing exactly that.
The best first step? Talk to a mortgage adviser who knows the NZ market. They can assess which options you're eligible for, compare lenders on your behalf, and structure your application for the best possible outcome.
You might be a lot closer to owning your home than you think.
This blog post is for general informational purposes only and does not constitute financial advice. Please speak with a registered financial adviser or mortgage broker for guidance specific to your situation.