LVR and Your First Home: Half the Deposit, Twice the Speed
Picture this: You've found a $600,000 home. With a $60,000 deposit in your pocket, you're borrowing $540,000. That's a 90% LVR – you're borrowing 90% of the property's value. Simple as that.
But here's where it gets good. Really good.
Banks have different rules for different types of homes. And if you're eyeing a brand new build (which, spoiler alert, you should be), you're in for a treat. Brand new homes only need a 10% deposit, while existing homes demand 20%. That's right – half the deposit. Twice the speed to your first home.
The key differences in today's market:
Here's something most Kiwis don't realise until it's too late: waiting to achieve a 20% deposit is like trying to catch a speeding train on foot. While you're busy saving, house prices are sprinting ahead.
Take a real example from Auckland's North Shore. In 2019, Jenny and Mike decided to save for a 20% deposit on a $700,000 home. They needed $140,000. Fast forward to 2024, and that same house hit $980,000. Their required deposit jumped to $196,000 – that's an extra $56,000 they needed to find. Meanwhile, they'd spent over $150,000 on rent during those five years of waiting.
On the flip side, their friends Sarah and Tom bought a new build in 2019 with just 10% down ($70,000). Today, they've built over $280,000 in equity and are looking at their next move up the property ladder.
Banks have their own special way of looking at your money, and understanding this view can be your secret weapon. Your borrowing power isn't just about income – it's about your entire financial picture through their unique lens. Trust me, they do it in a very unique way.
Take credit cards, for example. A $10,000 credit limit might seem harmless when you're keeping it clear, but banks multiply that by four when calculating your commitments. That innocent-looking piece of plastic in your wallet could be cutting $40,000 off your borrowing power.
The same goes for car loans and buy-now-pay-later accounts. A $5,000 car loan might be stopping you from borrowing $20,000 for your home. Banks take every financial commitment seriously, often more seriously than you might expect.
Let's say you're earning $70,000 a year and looking at a $700,000 new build. You'll need:
Everyone's path to their first home looks different. Let's dig into real strategies that work for your specific situation.
Starting your career? Your superpower is time and growth potential. Most young professionals in NZ earn around $50-70k, but that's just your starting point. Here's how to leverage your position:
Turn your income into a deposit-building machine by living like a student while earning a professional wage. Take that $70k salary: after tax you've got about $4,200 monthly. If you're smart about it, you could save $1,500-2,000 of that each month.
Your game plan looks like this: Put 10% of your salary into KiwiSaver (that's both your contribution and your employer's). Then, set up an automatic payment the day you get paid - 30% straight to a high-interest savings account. You'll be surprised how quickly you adapt to living on the rest.
Consider roles with commission or bonus potential - many sales positions can boost your income by 20-30%. A side hustle could add another $10-15k annually. Whether it's weekend work, freelancing, or turning a hobby into income, that extra cash goes straight to your deposit.
Combined income around $140k? You're in a strong position, but probably juggling more commitments. Here's your power strategy:
First, do a lifestyle audit. Take three months of bank statements and categorize every expense. Most couples find they're spending $400-600 monthly on things they don't need or particularly want. That's potential deposit savings of $5,000+ annually right there.
Look at your vehicles. Two car loans? That's destroying your borrowing power. Banks multiply your car loan amounts by four when calculating your borrowing ability. A $20,000 car loan could be reducing your borrowing power by $80,000. Sell one car, buy a cheap runner for cash, and watch your borrowing power soar.
Starting a family and buying a home? The order matters more than you might think. If you're planning both within the next couple of years, here's your optimal strategy:
Get your home first. Why? A pregnant partner or recent baby makes lending harder - banks get nervous about reduced income. Buy first, then start the family, and you'll have your mortgage locked in based on your dual income. I know this sounds crazy but it's true!
Think medium-term with your home choice. That one-bedroom apartment might be perfect now, but add a baby and you'll be looking to move within a year. Instead, look for a modest two-bedroom that can grow with you for the next 4-5 years.
Flying solo? You've got unique opportunities and challenges. Your advantage is complete control over your finances and decisions. Your challenge is building the deposit on one income.
Consider strategic partnerships. Team up with a friend or family member in the same situation. Two single buyers combining their $70k incomes suddenly have $140k household earning power - enough for a $700k+ property. You can sell and split the profits in 3-5 years.
Or look at rent-vesting: buy a new build in a growth area while renting where you want to live. A new build in Hamilton or Christchurch could cost $200k less than Auckland, meaning a much smaller deposit. Rent it out, and use the rental income plus tax benefits to help pay the mortgage while you keep renting where you prefer to live.
By understanding and adapting these strategies to your situation, you can find your fastest path to that first home. The key is picking the right strategy for your circumstances and sticking to it with focus and determination.
While everyone's dreaming about central Auckland or Wellington, smart first home buyers are looking at the bigger picture. Take Hamilton, for example. A new build there might cost you $650,000 compared to $850,000 in Auckland – that's a $20,000 difference in your deposit needs right there.
When choosing your location, consider these key factors:
Traditional savings accounts won't get you there fast enough. Think of your deposit savings like an athlete in training – every move needs to count. Use first home saver accounts with bonus interest rates which will help boost your savings even faster. Consider term deposits for portions of your savings, and don't forget about special first home buyer tools like Aera's Deposit Accelerator.
Government support can give your deposit a significant boost:
Let's look at what happens over 5 years with a $700,000 new build. With property values increasing at around 7% annually, you could build $280,000 in capital gains, plus about $85,000 in mortgage principal repayment. That's $365,000 in total equity.
Compare this to waiting and renting: You'll pay around $175,000 in rent, miss out on $280,000 in capital gains, and lose the chance to build $85,000 in equity. Total opportunity cost? Over $540,000.
First, get your numbers sorted. Check your KiwiSaver balance and calculate your real borrowing power. Review your credit commitments and track your spending patterns. Set clear savings targets and stick to them.
Next, get bank-ready. Clean up your bank statements, minimize unnecessary expenses, and build a solid savings history. Gather your proof of income and sort out any credit issues before they become roadblocks.
Finally, find your fast track. Research new build developments in your target areas, compare prices and growth potential, and check your First Home Grant eligibility. Consider different property types and potential buying partnerships.
The choice is yours: spend years chasing a 20% deposit while house prices sprint ahead, or take the smart route with a 10% deposit on a new build. With the right strategy and support, you could be in your first home months or years ahead of schedule.
Want to know exactly where you stand and how fast you could get there? Take our First Home Sprint quiz. We'll show you how to unlock up to $10,000 in credits towards your deposit and create a custom game plan for your first home – faster than you might think possible.
Time to turn those homeownership dreams into reality. Let's go!
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