How much can I borrow to buy a house?

How much you can borrow will depend on the size of your income (and how much you already spend on things like power, groceries etc), the amount of your deposit, and how much the lender is willing to lend you based on the value of the property you want to buy.

For example, the $orted guide advises that generally a lender will lend you up to 80% of the value of a house, but less if you want to buy an apartment.

Remember too, that there are other costs associated with buying a house apart from the purchase price of the house – for example rates, house insurance and perhaps insurance to cover the mortgage payments in case you become unable to work. 

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Can I get a mortgage without a deposit or with a low deposit?

Most lenders will require a deposit from you (generally around 20 percent). Just how big a deposit you need will depend on the lender and the type of property you intend to buy. Also read about assistance for people borrowing to buy their first home.

A responsible lender that is willing to provide mortgages for no deposit or a very low deposit will generally only do so for borrowers who can show that they have a good, reliable income and a reasonable amount of savings.      

There are options for a low-deposit mortgage, for people buying their first home:

Welcome Home Loan

This is for individuals who earn a salary of no more than $85,000 before tax, or groups (two or more people) earning a total of no more than $130,000 per year. You would need a minimum deposit of 10% of the property purchase price. The purchase price has to be no more than a maximum set by Housing New Zealand and which varies depending on where it is in New Zealand and whether it is a new or existing house.

KiwiSaver HomeStart grants

These are available to people who have been contributing to a KiwiSaver fund for at least three years. If you are buying an existing home, you can receive $1000 for each year you have contributed to KiwiSaver (up to a maximum of $5000). If you are buying or building a new home you can receive $2000 for each year you have contributed to KiwiSaver (up to a maximum of $10,000).

Kāinga Whenua Loan Scheme

This is for Māori who want to build, buy, or relocate a house to, Māori land.

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Is there assistance for people borrowing to buy their first home?

Apart from the low-deposit options you may be eligible for one of the following:

KiwiSaver first-home withdrawal

If you have been a KiwiSaver member for at least three years you may be able to withdraw some or all of your KiwiSaver funds to buy your house. You have to leave at least $1000 in your KiwiSaver account, and you will need to apply to your KiwiSaver provider. You can read more about early access to your KiwiSaver funds.

Kiwibuild homes

These are being built over the next ten years and are sold at an “affordable” price. You have to earn no more than $120,000 (if you are buying as an individual) or $180,000 (if there are two or more of you buying together) to be eligible, and you must register your interest. As homes become available, registered buyers are drawn by ballot.

Shared ownership arrangements

An example is the one offered by the New Zealand Housing Foundation (NZHF), which is a not-for-profit organisation. Under this arrangement you share ownership of the house with NZHF, according to what you can afford. 

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What are the differences between floating and fixed rate mortgages?

You can get a mortgage at a fixed interest rate, a floating interest rate, or a combination of the two.

With a fixed rate mortgage, the interest you pay on your loan is set at a certain rate for an agreed period of time (eg 4% one year). At the end of the fixed rate period you can choose to go for another fixed rate term, or move to a floating rate. 

The pros:

  • You will know exactly how much you have to repay, and can budget for this.
  • The fixed rate offered by a lender is often lower than their floating rate. 
  • If interest rates go up, you’ll be secure in knowing that the amount of interest you have to pay on your fixed rate mortgage won’t go up.

The cons:

  • There may be restrictions on whether you can make early or extra repayments, and you will likely be charged early repayment penalties if you do. 
  • If you decide to ‘break’ the fixed rate loan during the fixed rate period (eg to sell the home and buy another one), you might have to pay a ‘break’ fee. Depending on your circumstances these fees can be very large. Make sure that you find out about all of these charges before you enter into any agreement.
  • If you have other debts that you want to consolidate using your mortgage, it can be very difficult to do this.
  • If interest rates go down, you won’t be able to benefit from the decrease.

Floating (variable) rate

With a floating rate mortgage, the interest charged on your loan can go up or down as the market interest rates change – and your repayment amounts will increase or decrease accordingly. 

The pros:

  • You will generally have more flexibility in making changes to the mortgage, such as extending the time period of the mortgage payments if your circumstances change.  
  • You will generally be able to make higher or extra repayments and be charged a smaller corresponding early repayment fee (or none)  
  • It will generally be easier to consolidate other debts by adding them on your mortgage 
  • If interest rates go down, you can benefit from lower repayment amounts

The cons:

  • The lender’s floating rate is likely to be higher than their fixed rate.
  • If the rate goes up it will affect your repayments directly, so that you won't be able to budget as effectively.

Combination of fixed and floating rates

It is also possible to choose a combined agreement. This means that your debt is split, with part of it managed on a fixed interest rate, and part of it managed on a floating rate. Under this method, you can make early repayments on the floating portion and there is less movement in the interest rate on the fixed portion.
More about this is on the $orted website.

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What happens if I pay my mortgage back early, make additional repayments or larger repayments?

If your mortgage is a floating rate one, then you are probably able to make extra payments or larger payments without incurring any early repayment charges – but you should check this with your mortgage provider. If you can pay your mortgage off more quickly without incurring early repayment penalties you can save a substantial amount of money.

With a fixed rate mortgage you are more restricted. You will probably not be able to make extra repayments repayments or larger repayments without being charged an early repayment fee. The amount of this fee will vary depending on the mortgage agreement you have made, but it can often be very substantial - so make sure that you find out all the charges before you make any decisions.

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How can I protect myself against being unable to pay my mortgage?

Some lenders require borrowers to have life insurance to cover your mortgage if you die. Other lenders may require mortgage protection insurance which can cover your mortgage payments if you die, become ill or injured so that you are unable to work, or are made redundant (the cover varies depending on the insurance provider and the policy). Also see the information below about what to do if you are facing hardship meeting your mortgage payments.

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What is a rent to buy scheme and are they a good idea?

A rent to buy scheme (also known as ‘rent to own’ or ‘lease to purchase’) is aimed at people who can’t easily obtain a mortgage to buy a home e.g. due to a poor credit history (or no credit history), irregular income, or lack of deposit.

In essence, you pay an up-front amount followed by regular weekly rent payments. The payments include both rent and something towards the purchase price of the home. You can keep this up until you have enough for a deposit for a bank mortgage - based on the estimated value of the house by that time - at which point you have the option of buying the house.

Some things to watch out for:

  • Check whether the scheme provider will charge you any non-refundable fees for their service – these fees don’t go towards your deposit.
  • Your weekly payment might be much higher than if you were just renting a similar property, since those payments include amounts going toward your deposit, and interest. 
  • If you choose not to buy the house at the end of the rent-to-buy period (or are unable to e.g. because you couldn't get a mortgage), you will lose the money that you’ve already paid towards the scheme. 
  • Your mortgage application could still be turned down even after you have saved up a deposit.
  • There have been instances where an unsuspecting rent-to-buyer had their house repossessed by a mortgage provider, because the previous owner had defaulted on debts (e.g. owed to a mortgage provider). To avoid this happening to you, make sure the seller actually owns the house by checking with Land Information New Zealand (LINZ) that the seller’s name is on the certificate of title.

Rent to buy agreements are a form of credit contract, which means that you would have some protection under  the Credit Contracts and Consumer Finance Act (CCCF), for example regarding things like a 'cooling-off' period, disclosure and a hardship provision.

If you’re thinking of signing up to a rent to buy scheme, we strongly recommend that you consider other options first (such as the low deposit options and other help described elsewhere). If you still think this is your best bet, do obtain independent legal advice first.

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What does a mortgage broker do, and should I get one?

A mortgage broker is someone who offers advice to people who want to get a mortgage to buy a home or other real estate. They would try to find the mortgage product which best suits their client’s needs. The broker is normally paid a commission by the provider of the chosen mortgage product, so that it doesn’t cost the borrower anything.

It can be a good idea to obtain the services of a mortgage broker if you don’t want to spend time investigating the options yourself. A broker may also be able to get you a mortgage from a non-bank lender (e.g. building societies, finance companies, credit unions) who will only deal with brokers. Also, because mortgage brokers have to be Registered Financial Advisers, there is a clear complaints process to follow if you are unhappy about the service you are getting from your broker.

On the other hand, not all lenders will deal with brokers and some brokers won’t cover all lenders. Also, if some lenders pay more commission to brokers than other lenders, then there is a possibility that the broker could be tempted to simply steer you towards the mortgage product which earns them the greatest commission.

If you’re thinking of using a mortgage broker, make sure you find out:

  • what, if any, fees they will charge you
  • which mortgage providers they deal with
  • what commission they receive from the different lenders

You can also check out the interest rates charged by a range of lenders, so you have some idea of your mortgage options.

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I'm having difficulty with the mortgage repayments. What are my options?

It is very important to contact the lender as soon as you realise you are having problems (or will soon have problems) with repaying your mortgage, because the sooner you take action the more likely it is that the issue can be resolved. Many lenders are willing to negotiate a payment plan to tide you through a difficult time, as long as you get in touch with them as soon as possible.

If you can prove that you’re suffering significant financial hardship:

  • you may be able to withdraw money from your KiwiSaver funds and use this to pay your mortgage 
  • you can apply to your mortgage provider under the hardship provision, for an extension of your mortgage, a repayment holiday or similar.

You may be able to claim on mortgage repayment insurance if you have it.

Even if you can't apply under the hardship provisions, you should still notify the lender (or your mortgage broker, if you used one) and ask whether they are willing to come to an arrangement which helps you to make your repayments. If you are not able to negotiate an arrangement with the lender, they may begin the debt recovery process (see the next question).

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What will happen if I don’t make my mortgage repayments?

If you don’t meet your repayment obligations (this is called defaulting), the mortgage provider may send you a letter of demand. This is the first step of the debt recovery process.

1. Letter of demand

If your repayments become overdue, the lender will send you a demand letter. It will say how much you owe in arrears (overdue repayments), and  how long you have in which to pay this amount. The lender may first try to contact you to try to come to an arrangement, and only send you a letter of demand if this is unsuccessful.

The letter will say how much you owe in arrears (overdue repayments), and demand payment by a specific date.

When you receive this letter, contact the lender and ask whether it’s possible to agree on a repayment programme which makes it easier for you to repay your debt (if you haven’t already done so).

If the mortgage provider will not agree to a repayment programme for you, get some legal advice and consider either selling your house or refinancing with another lender.

You can read our information about selling your house privately or through a real estate agent. If you sell now, you’ll probably get a better price for it than if it is sold at a mortgagee sale.

2. PLA notice

If you haven't paid back the amount specified in the letter of demand, the lender may issue a Property Law Act (PLA) notice, which states that you are in default and tells you to pay a certain amount by a certain date (which is at least 20 working days after the notice is issued).

If you haven't already done so, contact the lender about a repayment programme and/or get legal advice.

3. Foreclosure / mortgagee sale

If you don’t pay the amount specified in the PLA notice by the due date, the lender will have the right to sell your property in order to recover the loan amount, interest and other costs.

They must take reasonable care to get the best price for the house, which can include getting an independent valuation and appointing a real estate agent to market the property. The lender may pass on these costs to you.

4. After the mortgagee sale

If the house sells for less than the amount you owe, you will be liable for the shortfall. The lender may agree to enter into a repayment programme for the balance of your debt, or they could choose to take recovery action.

You could also be liable for early repayment costs, if your mortgage was on a fixed rate at the time.

You can read more about mortgagee sales is on the Banking Ombudsman Scheme website, or about managing your debt on our Credit and Debt Management page.