Many are open to doing deals with borrowers with smaller deposits
Some aspiring first-time home buyers may have their sights set on accumulating a 20% deposit, but with the national median price for first-home buyers reaching $650,000 in September, this may prove to be a challenging endeavour.
But there’s good news, as mortgage brokers revealed that many banks are open to doing deals with borrowers who have less than a 20% deposit, leveraging LVR restrictions to allocate 15% of new owner-occupier loans to people in this position.
There are also exemptions, including for new builds.
The main banks “seem to have the widest-open doors for first-home buyers they have in a long time,” Jeremy Andrews, mortgage broker at Key Mortgages, told Stuff. “That means buyers with strong incomes and at least 10% deposit have far more options of which bank they go with compared to earlier this year.”
Data from the Reserve Bank revealed that in August, lending to people with a deposit less than 20% amounted to $673 million. This figure has increased compared to the previous year, when it was at $439m, but has decreased from the $761m recorded in 2021.
Glen McLeod, of Edge Mortgages, said most banks were willing to evaluate loan applications with smaller deposits, if they were “live deals.”
“Effectively, the clients need to have a sale and purchase agreement on a property in place in order for us to apply for a home loan above 80%,” McLeod said. “Most of the banks have been guarding the above-80% lending with this live deal concept so that it does not use up all their capacity.
“Each of the lenders have their own policy around uncommitted monthly income minimums, therefore the serviceability test is much harder. At the end of the day, it comes down to the serviceability with each lender. We are finding that it is spread around the banks, and we have had success with ANZ, BNZ, ASB, Westpac, and Kiwibank.”
Andrews said the government-backed First Home Loan presents an opportunity for people who could “walk the fine line” between having sufficient income to sustain a larger mortgage and higher interest rates while still meeting the scheme’s eligibility criteria.
The scheme allows for a 5% deposit and is open to couples or single parents with incomes of up to $150,000, or individuals earning up to $95,000. Those without a 20% deposit can expect to pay “standard” bank interest rates, which currently range from 7.45% to 7.85% for a one-year fixed term, along with a low-equity fee or margin.
Recent data indicated that first-home buyers have been actively participating in the market, accounting for 29% of property purchases in Auckland and Christchurch.
This, according to CoreLogic’s Kelvin Davidson, was driven by current market conditions, including banks having the flexibility to issue more loans to people with smaller deposits.
In contrast, people relocating from one property to another and investors with existing mortgages were less active than normal, accounting for 26% and 21% of purchases in the third quarter of this year, respectively, Stuff reported.
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