Low-deposit home buyers double in a decade: How risky is it? | Ryan Bridge TODAY

Added: 2026-06-03

[00:00:00]Increasing number of first home buyers are purchasing with just a 5% deposit.

[00:00:05]That is according to a new report by Infometrics. The percentage of first home buyers with just that 5% deposit has doubled in the past 10 years up to 12%. Gareth Kiernan is Infometrics chief forecaster and he is with us this morning. Good morning to you.

[00:00:21]I am wondering why there has been such a sharp rise. Have you managed to ascertain what the driving force is?

[00:00:29]>> There's a couple of factors behind it.

[00:00:31]Um firstly, if we look back 4 years ago for the government's first home loan scheme, government removed the caps, or the price caps in terms of buying your first home and getting that government assistance in terms of underwriting you if you've got a low deposit loan. And so we saw quite a big increase in borrowers going through that scheme following that. Uh the other reason as well as over the last couple of years we've seen the Reserve Bank move some of its um restrictions around borrowing and mortgages away from the sort of loan to value restrictions which they'd used since 2013. They've still got some of those in place, but they're now focusing more on the debt to income restrictions as being more of a useful regulation around keeping the sort of risky lending in check.

[00:01:15]Do we need to be concerned that so many are buying with such a small deposit, or can we take some heart from the fact that look, property prices have fallen so far, maybe it's safer to be such a low deposit borrower?

[00:01:29]>> It's certainly I think safer than it was back in 2021 when house prices were another 15 to 20% higher than they are and we obviously had significant price falls then. The Reserve Bank has said over the last year or so that house prices are at a level where they think they're at a sort of at a sustainable place and so there's not great risks of further price falls, not significant price falls anyway going forward from here.

[00:01:52]The other factor as well is just looking at the sort of lift in loans over the last 5 years or so, while the number of people borrowing with their sort of low deposit has increased, when you look at the overall stock of loans, there's much fewer people who have a low level of equity in the house than there was back 15 years ago before the LVR restrictions came in. So, in terms of the overall position for the banking sector, it is probably less risky now than it was back in the early 2010s.

[00:02:21]>> Well, what happens to house prices, I guess, is one part of the equation, but the other part is if you've got a small deposit, you've got quite a large loan, right? And we know that the next move in interest rates is likely to be up. So, is there a concern there about servicing that debt?

[00:02:39]>> I think there's always got to be a level of concern. Obviously, the banks, when they are deciding whether they lend to you or not, they do look at your ability to service the mortgage at significantly higher interest rates than what are around today. That's typically 1 and 1/2 to 2 percentage points higher they allow for in terms of those interest rate rises. So, I mean, from a personal point of view, you do want to be making sure before you make the commitment to that large loan that you're going to be comfortable if interest rates do go up and and as you said, we know they're going to be going up from here, and you might have to be facing, you know, paying another $200 a week, for example, in terms of servicing that mortgage. So, it is about understanding your own sort of financial position and choices as well and being comfortable with those.

[00:03:20]>> Not a lot of risk for the banks here, though, is there? Because these loans are underwritten by Kainga Ora. So, is that just shifting the risk from the banks' balance sheet onto the government's?

[00:03:33]>> To a degree. I mean, look, there there is 25% of low deposit lending that the banks are still able to do to owner-occupiers and first-home buyers.

[00:03:41]So, there will be some level of risk there because we have seen that proportion of lending going up as well, but the banks are happy to take that on.

[00:03:49]In terms of the underwriting by Kainga Ora, Uh numbers, when we look at them over the last two or three years, there has been very sort of low levels of um uh default on those loans. And so, while there is some risk there, it does seem to be working out well uh for the government and Kainga Ora in terms of the way the scheme is being managed.

[00:04:09]>> Could you also argue though, what is the rush? It doesn't feel like house prices are going anywhere fast at the moment. So, could you just keep saving for a bit longer and buy with a bigger deposit, smaller loan?

[00:04:22]>> Yeah, certainly very different situation back to back in 2021 when of course everybody was piling into the housing market because they felt like if they didn't buy the house today, it'd be up another 100 a hundred thousand dollars over the next month or so given how quickly the market was going. So, you're right. At the moment, we've seen over the last year house prices have actually tracked down slightly by about 1% uh and with interest rates set to rise, there's probably not a lot of upward pressure on those house prices at the moment. So, yes, look, I mean buying your first home, it is very much a a a sort of uh stage of life for people and so often it can be determined by having children or other situations like that. But if you're not you know, needing to rush around it, there's certainly no sort of risks around uh house prices lifting significantly in the near term. So, keeping saving uh could well be uh a good option.

[00:05:08]>> Just for context though, back in 2013 when they brought in the loan-to-value ratio rules, when low deposit lending was going gangbusters and the Reserve Bank was really worried about it. We are not in that territory now, are we?

[00:05:22]>> No, we're not. I mean, I guess the only other point I'd make is if you look at housing affordability, which was you know, a concern uh back in 2013, one of the reasons they did bring in the sort of uh loan-to-value restrictions as well. I mean, housing affordability now, yes, it's better than it was in 2021, but it's still worse than it was anytime prior to about 2016 or 17. So, um you know, there's there's issues there in terms of people being able to get into the housing market and we know the government is trying to address housing supply as well in terms of reforming the RMA and making land more available. So, you know, there is a like you say, a broader context to to put out there, but probably overall the financial position of the the country and the banking system in a better state than it was 13 years ago.

[00:06:05]>> Really appreciate your time and your analysis. That is Gareth Kiernan, Infometrics chief forecaster.