What is a deposit, and why do I need one? A simple guide to home loan deposits in New Zealand

Shane Passfield-Bagley
Dec 1
7 min read

What is a deposit?

When you buy a property with a home loan, the deposit is the portion of the price that comes from you, not the bank.

If the house costs $800,000 and you have $160,000, your deposit is 20%.
The bank lends you the remaining $640,000, which is 80% of the value.

So at its most basic, a deposit is:

Your share of the purchase price that goes in first, so the lender is not funding the whole thing.

In slightly more technical terms, the deposit reduces the risk exposure for a lender providing secured (mortgage) lending. If something goes wrong and the property has to be sold, there is a buffer between the sale price and what is owed.

How a deposit reduces risk for the bank and protects you

Banks and other lenders think in terms of loan to value ratio, or LVR.

LVR = loan amount ÷ property value, shown as a percentage.

Using the example above:

Property value: $800,000
Loan: $640,000
LVR: $640,000 ÷ $800,000 = 80%

A higher deposit means a lower LVR, which usually means less risk for everyone:

For the lender
- Less chance of losing money if the property has to be sold in a downturn.
- More room for them to help if your situation changes, for example by restructuring the loan.

For you
- A buffer if prices fall.
- Often sharper interest rates and more product choice at lower LVRs.
- A smaller loan to repay over time, which can mean lower repayments or a shorter term.

So while deposits are often talked about as a hurdle or barrier, they are also a safety feature built into the system.

Why deposits are not just a bank preference

Deposits are not only about individual banks being conservative.

In New Zealand, banks are also subject to Reserve Bank rules designed to keep the financial system stable. One of the key tools is LVR restrictions, which limit how much low deposit lending banks can do in total.

In simple terms:

The Reserve Bank sets rules about how much lending banks can do to people with small deposits.
These rules are updated from time to time, and have recently been eased slightly again as market risks have changed.
Alongside LVR rules, there are now debt to income (DTI) restrictions that limit how many high DTI loans banks can write, which is another way of managing risk for borrowers and the wider economy.

The end goal is to:

Reduce the risk of large numbers of people ending up in negative equity
Avoid aggressive booms and busts in house prices
Make sure buyers are not taking on more than they can realistically afford

So when a bank says they need a certain deposit, they are balancing:

Their own risk appetite
The regulatory rules they must follow
The duty to make sure lending is suitable for you in the long term

How much deposit do people usually need?

This is where the detail starts to change, depending on who you are and what you are buying. We will go deep on each group in separate guides, but here is a high level overview for New Zealand at the time of writing:

Owner occupiers (home you live in)
- Standard bank lending often assumes a 20% deposit.
- Banks are allowed to do a portion of their lending to people with less than 20% deposit, subject to LVR limits set by the Reserve Bank. Currently, we are seeing banks offering lending for deposits as low as 10% in most cases.

Investors (rental properties)
- Historically, investors have needed a larger deposit, often around 30% or more, and banks are more restricted in how much high LVR investor lending they can do.

First home buyers with support
- Government backed options like Kāinga Ora First Home Loan allow some buyers to get in with as little as 5% deposit, subject to income, price caps and lender criteria.

New builds are often treated more flexibly under Reserve Bank rules, so some banks can offer lower deposit options on qualifying brand new or off the plan properties than they can on existing homes, subject to their criteria.

On top of this, non-bank lenders can sometimes work with smaller deposits or slightly different rules, usually at higher interest rates or with tighter conditions.

Deposit requirements do change over time as the Reserve Bank reviews settings and as each lender updates its own policy, so it is important to treat these numbers as typical ranges, not fixed promises.

Where can my deposit come from?

Most people do not have a single tidy pile of cash in the bank. Deposits are usually built from several sources.

Common deposit sources in New Zealand include:

Cash savings
- Money built up over time in savings or term deposits.
KiwiSaver first home withdrawal
- If you have been in KiwiSaver for at least three years, you may be able to withdraw most of your balance to help with a first home, provided you will live in the property and meet the criteria.
Gifts or family support
- For example, parents gifting part of the deposit, or providing a guarantee secured over their property. Different banks treat these structures differently.
Equity in an existing property
- If you already own a home or another property, the equity (the portion you own outright after the mortgage) can sometimes be used as part or all of the deposit for your next purchase.
Proceeds from selling another home
- When you sell and buy again, your net sale proceeds typically form your deposit for the next property.

There are also some less ideal sources, such as using personal loans or credit cards to cover a shortfall. In practice, most main banks are wary of this, because it increases your overall debt and can work against you in serviceability calculations.

How your deposit affects what you can spend

It is very common to focus on income, expenses and how much the bank will lend. Your deposit is another big lever that affects your price range.

A simple way to think of it:

Maximum purchase price = deposit ÷ deposit percentage

For example:

You have a $100,000 deposit
At a 20% deposit, your maximum purchase price is around $500,000
At a 10% deposit, in theory, the same deposit could support a $1,000,000 purchase

However, that does not mean the bank will automatically offer the higher figure. They will still test:

Your income and expenses
Existing debts
DTI and LVR limits
Your overall risk profile

A larger deposit can help you in a few ways:

It can open up more lender options, including main banks that may not be able to help at a smaller deposit level.
It may qualify you for lower interest rates or fewer restrictions.
It gives you more room to handle valuations that come in a bit low compared to the agreed purchase price.

On the flip side, if your deposit is tight but your income is strong, a good adviser can often help you explore options like Kāinga Ora First Home Loan, new builds, non-bank lenders or different purchase strategies.

Common myths about deposits

Myth 1: You must have a 20% deposit or you cannot buy

For many people a 20% deposit is ideal, but it is not the only path. Banks are allowed to lend a portion of their book to borrowers with smaller deposits, and there are specific low deposit programmes for eligible first home buyers.

The real question is not only "can I buy", but "can I buy safely without stretching myself too far".

Myth 2: The deposit is just about the bank protecting itself

A solid deposit absolutely helps the bank, but it also helps you:

You start with equity from day one, not just a huge loan.
You are less exposed if values move around.
You have more flexibility in the future for renovations, investments or restructuring.

Myth 3: Bigger deposit always beats better cash flow

A bigger deposit lowers your loan, but it might not be the only factor that matters.

Sometimes, for example with investors, the quality of the property, rent, maintenance, and your overall financial plan can be just as important as squeezing out a few extra percent of deposit. Likewise, for first home buyers, waiting years to scrape together a perfect deposit can cost more in rising rents or house prices than it saves in interest.

This is where tailored advice becomes valuable, rather than a one size fits all number.

Different buyers, different deposit conversations

Although the core idea of a deposit is the same, the detail looks different depending on your situation.

Each of these deserves its own dedicated guide:

First home buyers
- How much you really need, how KiwiSaver and government schemes fit in, and what to watch with low deposit lending.

Movers and people who already own a home
- How to use equity, what happens when you buy before you sell, and how deposits work if you keep your existing home.

Property investors
- Typical deposit levels for investment properties, how equity works across multiple properties, and how bank vs non bank rules differ.

This article is about giving you the big picture. The next step is to zoom in on the path that actually matches where you are.

Bringing it all together

To recap:

A deposit is your share of the purchase price, paid up front, that reduces how much the lender needs to advance.

It plays a central role in how lenders assess risk, using tools like LVR and DTI, under rules set by the Reserve Bank.

Deposits can come from several places, not just cash savings.

The right deposit for you depends on whether you are a first home buyer, mover or investor, along with your income and wider plans.

Ready to talk about your deposit?

If you are unsure where you fit or how much deposit you actually need, get in touch and we can walk through your numbers together and map out your options.