5%, 10%, or 20% Deposit: Which Is Right for You as a First Home Buyer in South Auckland?

Saving a deposit is usually the hardest part of buying your first home. But how much do you actually need for a first home deposit? And what are the real trade-offs between getting into the market sooner with a smaller deposit versus waiting to save more?

This guide breaks down every deposit option available to New Zealand first home buyers in 2025: the true costs, the pros and cons, who each option suits best, and the situations that might change which path makes the most sense for you as you save for your first home deposit.

Pro Tip: If you’re house-hunting in South Auckland where suburbs like Manurewa, Papakura, Mangere, and Takanini offer some of Auckland’s most accessible entry prices then this guide is for you.

The Three Deposit Pathways: A Side-by-Side Overview First home deposits.

	5% Deposit	10% Deposit	20% Deposit
Property Price	$700,000	$700,000	$700,000
Deposit Required	$35,000	$70,000	$140,000
Loan Amount	$665,000	$630,000	$560,000
Lender’s Mortgage Insurance (LMI)	~$3,975*	~$3,150*	None
Low Equity Margin (LEM)	+0.5–0.75%	+0.25–0.5%	None
Est. Weekly Repayment (6.5%, 30yr)	~$998	~$947	~$841
Govt Scheme Available?	Yes (Kainga Ora) and at certain bank discretion	Bank discretion	Standard lending
Equity on Day 1	5%	10%	20%

*LMI estimate based on the Kainga Ora First Home Loan premium of approximately 0.5–1.2% of the loan value. These are not always required Rates reviewed by Kainga Ora periodically. Confirm current rates with your mortgage adviser. Repayment estimates are indicative only.

OPTION 1: Buying with a 5% first home deposit

How Does a 5% Deposit Work in New Zealand?

In standard bank lending, a 5% deposit would not get you approved for a first home loan, or even your next home or investment property. Banks standard requirement is 20%. The 5% pathway exists because of the Kainga Ora First Home Loan scheme, where the government acts as guarantor, allowing participating lenders to approve your application with a smaller deposit. It’s important to note that whilst this will focus on the Kainga Ora option, some banks will still allow you to purchase with a 5% deposit, but without the special benefits the Kianga Ora scheme offers.

This scheme is specifically designed for people who can afford to make regular mortgage repayments but are struggling to save a large enough deposit. It is not a subsidy as you still borrow the full amount and repay it but it gets you into the market years earlier.

Kainga Ora First Home Loan: Who Qualifies?

• New Zealand citizen, permanent resident, or resident visa holder who is ‘ordinarily resident in NZ’
• Individual income: $95,000 or less (before tax) in the past 12 months
• Joint income (two or more applicants): $150,000 or less (before tax) in the past 12 months
• First home buyer, or a previous owner now in a similar financial position to a first home buyer
• Purchasing the property as your primary place of residence (You must intend to live in it)
• Employed in the same role for at least 12 months.
• Minimum deposit: 5% of the purchase price (Can come from savings, KiwiSaver, gifts, or a combination)

Important: The Kainga Ora First Home Loan is available through select participating lenders only — including Westpac, Co-operative Bank, SBS Bank, and others. Not every bank offers it. A mortgage adviser can identify which lender is right for your situation.

What Does the 5% Deposit Actually Cost You?

Buying with 5% isn’t free! there are specific costs that come with low-deposit lending in New Zealand:

• Lender’s Mortgage Insurance (LMI): You may need to pay an insurance premium which is currently approximately 0.5%–1.2% of the loan value to Kainga Ora for underwriting the loan. This can be paid upfront or added to your loan balance. On a $665,000 loan, this could be $3,300–$7,980. Confirm the current rate with your adviser as these are reviewed regularly.
• Low Equity Margin (LEM): Some lenders charge a higher interest rate to low-deposit borrowers. Typically 0.25%–0.75% above the standard rate. This is sometimes called a low equity premium (LEP). On a $665,000 loan at 0.5% premium, that is approximately $3,325 in extra interest per year. Note: this is waived when making use of the Kainga Ora First home scheme.
• Higher loan balance: With only 5% equity, you are borrowing 95% of the property’s value. Your weekly repayments are higher, and it takes longer to build meaningful equity.

Pros of a 5% First Home Deposit

• Enter the market years earlier. This is particularly powerful in a rising market
• Stop paying rent and start building equity, even if it’s slow at first
• KiwiSaver contributions can cover most or all of your 5% deposit after 3+ years
• Government-backed Kainga Ora carries the lender’s risk, not a private insurer
• Access to the market now means potential capital gains over the life of the loan

Cons of a 5% First Home Deposit

• Higher total interest cost over the life of the loan
• LMI premium adds thousands to your upfront or ongoing costs
• Low Equity Margin increases your interest rate until you reach 20% equity (If not using the KO scheme)
• Less buffer if property values fall. You could find yourself in negative equity
• Strict eligibility criteria such as income caps, residency requirements, employment history
• Fewer lenders to choose from as it is limited to Kainga Ora participating lenders
• Property must be owner-occupied and you cannot immediately rent it out

Who is this best for? First home buyers in South Auckland who are paying high rent, have consistent employment income under the cap, have 3+ years of KiwiSaver they can withdraw, and want to stop paying dead money in rent and start building equity now.

OPTION 2: Buying with a 10% first home deposit

How Does a 10% Deposit Work in New Zealand?

A 10% deposit sits in the middle ground. It’s not covered by the Kainga Ora First Home Loan scheme (which is specifically for 5%), but the Reserve Bank of NZ allows banks to lend up to 15% of their new residential mortgage lending at below 20% deposit. This is known as the LVR (Loan-to-Value Ratio) speed limit.

In practice, banks use their discretion to approve select applicants with 10% deposits. This is generally reserved for applicants with strong income, good credit history, stable employment, and low levels of other debt. It is sometimes called bank low-deposit lending or standard bank lending with LVR exception.

There is no separate government scheme for 10%. It is up to the lender’s own risk appetite and your financial profile.

What Makes a Strong 10% Deposit Application?

• Combined household income that comfortably services the mortgage. Typically $120,000+ for a $700K property
• At least 3 months of clean, well-managed bank statements
• No recent dishonours, unarranged overdrafts, or problematic spending patterns
• Stable employment: ideally permanent, full-time positions for both applicants
• Low existing debt: BNPL, personal loans, and credit card balances significantly reduce approval chances

The Real Costs of a 10% Deposit

• Low Equity Margin: Banks typically charge a rate premium of 0.25%–0.50% until you reach 20% equity. On $630,000 at 0.35% premium, that is roughly $2,200 extra per year.
• No LMI with most banks (unlike the Kainga Ora 5% scheme) but some lenders may charge their own low-equity fee of $500–$2,000.
• Less equity buffer than a 20% deposit where a 10% correction in property values would put you at or near 0% equity.
• Limited lender choice as not every bank offers this, and your broker will know which banks are currently approving 10% applications.

Pros of a 10% Deposit

• Access to more lenders than the 5% Kainga Ora scheme
• No income caps and suitable for buyers above the Kainga Ora $95,000/$150,000 limit
• Smaller Low Equity Margin than 5% meaning you hit the 20% equity threshold sooner
• No Kainga Ora LMI premium and lender discretion may mean no separate insurance cost
• Enter the market 2–4 years earlier than saving a full 20% deposit
• More purchasing power than 5% deposit buyers asfewer scheme restrictions

Cons of a 10% Deposit

• Still subject to Low Equity Margin until you hit 20% equity typically 2–5 years
• Harder to get approved than a 5% Kainga Ora loan as bank discretion means inconsistent outcomes
• High income requirements in practice, even if no formal cap
• No specific government support backing your application
• Equity buffer is thin and market corrections could leave you underwater

Who is this best for? Higher-income first home buyers who exceed Kainga Ora income caps, have strong financial profiles, and want access to a wider range of lenders and properties but haven’t yet saved a full 20% deposit.

OPTION 3: Buying with a 20% first home deposit

Why Is 20% the Gold Standard in New Zealand?

A 20% deposit is the threshold at which banks treat you as a standard, low-risk borrower. Cross that line and the rules of the game change significantly in your favour. Lower interest rates, no LMI, no Low Equity Margin, and access to the most competitive deals from any lender.

On a $700,000 South Auckland property, a 20% deposit means saving $140,000. That is a significant sum especially for first home buyers also managing rent. But the long-term financial benefits are substantial.

What Changes When You Have a 20% Deposit

• Access to the best interest rates in the market and no low equity loading
• No Lender’s Mortgage Insurance (LMI) premium
• Choice of any lender because you are the borrower every bank wants
• Lower weekly repayments from day one and thousands less paid over the loan term
• Substantial equity buffer. A 15% property market correction would still leave you in a positive equity position
• Greater negotiating power with lenders on cashback offers, rate discounts, and loan structure

The Real Long-Term Savings

To illustrate the difference, here’s a comparison of total interest paid over 30 years on a $700,000 South Auckland property at a base rate of 6.5%:

Scenario	5% Deposit	10% Deposit	20% Deposit
Loan Amount	$665,000	$630,000	$560,000
Interest Rate (incl. LEM)	~7.0%	~6.85%	6.5%
Est. Total Interest (30yr)	~$955,000	~$874,000	~$716,000
Extra Cost vs 20% Deposit	+~$239,000	+~$158,000	—
LMI Premium (approx.)	~$3,975–$7,980	None (most banks)	None

Note: These are illustrative estimates based on a base rate of 6.5% with indicative LEM loadings. Actual rates depend on lender, loan structure, and market conditions at the time of application. Speak to a mortgage adviser for personalised projections.

Pros of a 20% Deposit

• Best interest rates and no Low Equity Margin or LMI
• Access to all lenders and the most competitive products
• Lower weekly repayments and significantly less total interest paid
• Substantial equity buffer protects you if property values fall
• Stronger negotiating position as banks compete harder for your business
• Greater flexibility for loan structure such as revolving credit, offset facilities, etc.

Cons of a 20% Deposit

• Takes significantly longer to save. For many South Auckland buyers, 5–8+ years of saving
• While saving, you are paying rent that builds no equity for you
• If property prices rise faster than you save, you may end up chasing a moving target
• Opportunity cost as KiwiSaver left uninvested for longer earns less growth

Who is this best for? Buyers who have strong savings discipline, stable housing (e.g., living rent-free with family), and are in a market where prices are stable or falling. Also ideal for buyers purchasing in the $800K+ range who want the strongest possible financial position from day one.

Which Deposit Is Right for Your Situation?

There is no universal answer. The right deposit size depends on your specific circumstances. Here are the key situations that should guide your decision.

Consider 5% if…

• You have been contributing to KiwiSaver for 3+ years and can use your balance as your deposit
• You are currently paying rent and every month is dead money as the cost of low-equity lending may be less than years of continued rent
• Your household income is under the Kainga Ora caps ($95K single / $150K joint) and you qualify for the scheme
• You’re buying in a suburb like Manurewa or Papakura where prices are more accessible and entry-level stock is available
• You have steady, permanent employment and clean bank statements for the past 3 months
• South Auckland property values have been steady or trending downward and getting in sooner could capture future gains

Consider 10% if…

• Your income exceeds the Kainga Ora $95K/$150K cap as you don’t qualify for the scheme
• You want access to a broader range of lenders and properties than the 5% scheme allows
• You have a strong financial profile ie. high income, low debt, clean credit and a bank is willing to approve you
• You’ve been saving consistently and are close to 20% sometimes it’s worth reaching 10% first and reassessing as other expenses such as furnishing add up.
• You’re purchasing a new build, where some lenders have more flexibility on LVR requirements

Consider 20% if…

• You’re living at home rent-free or have unusually low housing costs so you can save aggressively
• The market you’re buying in is stable or softening waiting doesn’t always mean prices run away from you
• You’re buying at the higher end of South Auckland or in general pricing ($850K+) where the savings on interest are most significant
• You want maximum financial flexibility from day one: revolving credit, loan portability, lowest possible repayments
• You’re close to the threshold and a few more months of saving would get you there

Additional Considerations That Could Change Your Decision

1. The KiwiSaver Factor

For many South Auckland first home buyers, KiwiSaver is the single biggest factor that makes a 5% deposit viable. After three years of contributions, you can withdraw most of your balance (leaving $1,000 behind) for a first home purchase. Many buyers find their KiwiSaver covers their entire 5% deposit.

If you’re 3+ years into KiwiSaver and haven’t checked your balance recently, do it now. You might be closer to a deposit than you think.

2. The ‘Bank of Mum and Dad’

Family gifting is increasingly common in South Auckland. If a family member can gift you funds toward your deposit, this can push you from 5% to 10% or from 10% to 20% changing which lending products you qualify for. Banks require a signed gift letter confirming the funds are a gift, not a loan. A genuine gift does not count as debt.

3. New Builds vs Existing Homes

New builds often come with more favourable LVR treatment from banks. Some lenders will approve a 10% deposit on a new build when they would require 20% on an existing property. If you’re open to new builds, including the significant new residential development in South Auckland’s growth corridors like Takanini and Papakura, this can expand your options meaningfully.

4. Rising Interest Rates vs Rising Property Prices

One of the hardest calculations for first home buyers is whether to wait and save more, or buy now with what you have. If property prices in your target suburb are rising faster than your savings rate, waiting could cost you more than the Low Equity Margin. Conversely, if prices are flat or falling and rates are high, waiting gives you both a lower purchase price and more equity on day one.

This is not something to guess at. A good mortgage adviser can model this for your specific situation using current market data for South Auckland suburbs.

5. Getting Pre-Approved Changes Everything

Many South Auckland first home buyers don’t know which deposit tier they actually qualify for until they speak to a lender or mortgage adviser. You might qualify for a 5% Kainga Ora loan without realising it. Or your income might mean a 10% application gets strong approval across multiple banks. Pre-approval gives you certainty, and certainty gives you power.

5. Worried About Making Mistakes?

There’s plenty of help and support out there and it’s often free. See our top mistakes first home buyers make article here

Frequently Asked Questions