What you need to know about low deposit loans

With Wednesday’s announcement that Reserve Bank restrictions in regard to loans for those with less than a 20% deposit staying for now, with no changes to policy surrounding this, no doubt there are many thinking home ownership will always be out of reach.

Don’t be totally despondent though as there are options and solutions that may work for you. Banks review their appetite for low deposit lending regularly, particularly around surplus income required to meet their criteria for borrowers in this space. Where you could be declined one month, the next could see an approval based on the banks percentage of loans written and whether that figure is over or under the allowed percentages stipulated by the Reserve Bank.

The competition for borrowers with a 20% deposit is still fierce, and although this may seem unfair to those of you struggling to even get on the property ladder, it actually enhances your chance of financing a home with less than a 20% deposit, as every loan written in the “greater than 20 % deposit” space releases 10% of that loan amount to the pool for low “less than 20% deposit” lenders.

Take it that Mr Smith with a 20% deposit is settling a $500,000.00 loan this week, that means the low deposit pool now has $50,000.00 available to lend to those who meet the criteria. Some weeks we have seen banks with no funds to lend in this space, so this means that even though there is demand, there is no supply and therefore a decline may not need to be seen so personally as a reflection of your characteristics. It may simply be that there are no funds available and trying again may be the thing to do.

Although this news may not make life less complicated for low deposit borrowers, we need to re-iterate that a large percentage of the clients we are helping are still First Home Buyers, Banks are lending above 80%, and there are options and solutions around moving forward. In the hope of restoring confidence we have below listed some top tips for sourcing finance and preparing for borrowing in this space.

• See a Registered Financial Advisor (us) as we have up to date market information, specialise in Home Loans, save you time sitting with all of the lenders and money given discounts we can get, and give direction
• Operate your accounts well. Keep them within their limits, and avoid dishonours and unarranged overdraft fees
• Save regularly into an account you don’t touch. If you are saving for separate purposes, have different accounts for each purpose
• Minimise short term debt. Ask us for advice around whether to repay and reduce your outgoings or leave it in place and therefore have more deposit. One size does not fit all
• Show stability in your place of work and residence. Moving around a lot, although sometimes unavoidable in Christchurch currently doesn’t give the bank confidence in finding you if things go wrong
• Sign up for Kiwisaver and enrol your kids. There are First Home options and benefits for being a member. Ask us how and what
• Ask for advice from us in regard to support from family. There are guarantee and surety loan options available to those who have family willing to assist

As always it’s better to know how you can get there if it it’s not right now, and as always we are here to help.