home buyers warned of costs when buying with less than 20% deposit – The Prosperity Project
New Zealand mortgage adviser Michelle Isemonger warns that first-home buyers using deposits of less than 20% face significant extra costs, including low-equity margins. While lower house prices and mortgage rates are encouraging buyers, experts advise considering the long-term financial impact of these premiums.
Why it matters
This highlights the financial risks associated with low-deposit home ownership in a volatile property market, impacting a large demographic of first-time buyers.
More than half of New Zealand’s first-home buyers are now getting on to the property ladder with less than a 20% deposit – but many don’t realise the costs of doing so.
First-home buyers are currently the largest group of property purchasers in New Zealand, helped by lower house prices and a fall in mortgage rates.
Buying with less than a 20% deposit lowers one of the biggest hurdles to home ownership.
But Loan Market mortgage adviser Michelle Isemonger told Nadine Higgins on The Prosperity Project podcast it can come at a significant cost.
Borrowers with less than 20% equity generally don’t qualify for banks’ discounted “special” mortgage rates and they also face a low-equity margin or fee.
“When you do have less than a 20% deposit, it is a bit harder,” she says “With a 5% deposit ... they’re adding in a low-equity margin of up to 1.5%.”
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