How much can I borrow?
Here’s the thing. Banks want to lend to you. That’s how they make their money. This means they’ll often let you borrow more money than you can actually afford. So unless you like living off baked beans and two-minute noodles, you’ll need to work out what you can borrow in real terms, whether you’ll have to amend your spending and by how much.
To give yourself an idea, enter a few basic details into this handy borrowing calculator. It’ll only take you about 30 seconds (yep, we’ve timed it).
Once you’ve got a 20% deposit, you’ll find banks will be prepared to lend you just about anything.
While a 20% deposit is ideal, we can work with as little as 15% savings in the bank. Borrowing over 80% can get trickier, and more expensive.
If you don’t have a wad of cash in the bank, there are still options. The easiest and cheapest way to buy is going to the “bank of mum and dad”. This means using your parents to guarantee that part of your 20% deposit you don’t have. Their guaranteed portion will be secured over their property or can be secured over a term deposit. You can find out more about the ins and outs of this here.
If you're a first home buyer you can withdraw your KiwiSaver contributions to use as a deposit towards your new home as long as you’ve been with KiwiSaver for at least 3 years.
There are some requirements to be able to withdraw your KiwiSaver. In order to withdraw some or all of it you must:
- have contributed at least 3% of your income to a KiwiSaver scheme for at least three years;
- have a combined 10% deposit (including KiwiSaver) and
- be buying your first home.
To get the additional subsidy, you must also:
- be planning to live in the house for at least six months,
- have a single income under $85,000 or a combined yearly income of $130,000 or less (before tax) two buyers,
- be buying a house under $600,000 in Auckland, $500,000 in other major metropolitan areas, and $400,000 across the rest of New Zealand.
Getting your money out:
If you have a conditional sale and purchase agreement you can choose to make your withdrawal at the point of deposit or when you settle.
If KiwiSaver isn’t an option for you, then you’ll want to make other arrangements for this amount such as a deposit bond, which we can also help you with.
In addition to KiwiSaver, if you earn less than $130,000 per year and are buying for less than $600,000 you may be eligible for a HomeStart Grant of up to $5,000 per borrower.
The HomeStart Grant is $1,000 for each year you’ve been with KiwiSaver, up to a maximum of $5,000 for five years. If you’re a couple buying a house together and you both qualify for a grant, you could receive a combined grant of up to $10,000.
It gets better if you’re buying off plan or building new. You could double your HomeStart Grant up to $20,000 per couple.
Squirrel work with Deposit Power (a division of CBL Insurance) to offer deposit guarantee bonds for first home buyers, residential home buyers and buyers with longer settlement dates.
The situation when a deposit guarantee bond becomes really useful is when there is going to be a long settlement date, for example when buying property off plan which often takes over a year to settle.
Huge savings can be made by using a deposit bond instead of borrowing a cash deposit – but before we get too carried away, we should mention that you need to meet several conditions before being able to take advantage of Deposit Power deposit guarantee bonds:
- Your deposit bond can be up to a maximum of $100,000
- The property you are purchasing must be intended to be owner-occupied
- Deposit bonds are for residential properties only
- You must be a NZ resident
What are the benefits?
If you don’t have cash readily available, a deposit guarantee bond may be cheaper than borrowing short term to cover the deposit.
Many banks will charge an overdraft rate of interest (up to 15%) or at the very best a floating mortgage rate (up to 6.75%.) The cost of a deposit bond is a one-off upfront fee
Check out the table below to see how a deposit bond fee compares with an equivalent financing rate for a similar term:
|Term||Bond fee||Equivalent Financing Rate up to*|
*Based on utilising maximum term.
Here's an example showing how the fee is calculated:
Property purchase: $600,000
Guarantee term: 4 months
Deposit required: $60,000
Total fee collected: $1,500 (2.50% of $60,000)
The fee is charged upfront as single one-off fee. It can be charged to your credit card or paid in cash.
What about using KiwiSaver?
From 1 April 2015 KiwiSaver can be withdrawn before settlement provided the deposit is held in trust until settlement.
But, there are a few issues that favour the use of deposit guarantee bonds instead of KiwiSaver:
- it takes about ten days to process KiwiSaver so this wont work for auctions
- if settlement is sometime off it precludes you from increasing your KiwiSaver withdrawal
- it assumes you have all of your deposit available and don’t need to still save some of it.
How much can you save by not using your KiwiSaver for your deposit?
If you are buying off-plan then chances are you wont be settling for at least 12 months. If you are eligible for the First Home Subsidy then staying in KiwiSaver will give you another $2,000 per person subsidy. In 2014 the average return on a growth fund was 8.50% so if you had $30,000 invested that gives you another $2,400 in earnings and assuming a household income of $120,000 then another $3,600 of employer contributions.
All in all that means you could get up to an extra $10,000 out of your KiwiSaver by utilising a Deposit Power deposit guarantee bond.
How to get a deposit bond?
First off we need to get you approved for mortgage finance. We can easily issue Deposit Power deposit guarantee bonds off the back of a finance approval with minimal additional paperwork.
As mentioned above, you need to meet some standard conditions for Deposit Power deposit guarantee bonds like intending to live in the property you’re buying and being a NZ resident. Deposit bonds can’t be used on commercial or investment properties and there is a maximum bond amount of $100,000. We can look at bonds that fall outside of these criteria but that will done on a case-by-case basis.
They can be issued for various terms depending on your settlement date:
- Up to 3 months
- 3 – 6 months
- 6 – 12 months
- Up to 2 years
Squirrel will also make sure the Real Estate Agent understands the deposit guarantee bond. Agents that work on new developments will be aware of deposit bonds. However, as these are new to market there will naturally be a low level of industry awareness for a while.
Can I get a deposit bond through Squirrel if I’m already approved directly with a lender?
Yes, if you are doing a deposit bond less than 12 months. We don’t have to arrange your mortgage but do need to see evidence that you have a mortgage approval already in place.
For deposit bonds over 12 months you must have your mortgage approval with Squirrel. If you are already approved, that’s fine but we’ll need to still do a full mortgage application and have your approval moved over to us. Mortgage approvals last for a maximum of 12 months so it’s incumbent on us to get your approval extended when it first expires
What do deposit bonds mean for Real Estate Agents?
It will increase the market of potential buyers and make it easier to get buyers unconditional where they don’t have ready access to a 10% cash deposit.
For off-plan sales it’s a no-brainer because the buyer deposit needs to stay in trust anyway until settlement.
For auctions, the agent needs to be aware that they won’t get paid until settlement. Normally a deposit can be distributed 10 working days after unconditional. With deposit bonds the agent and vendor wont receive funds until settlement.
Download our handy Deposit Bonds Advice Sheet
About Deposit Power
A Deposit Power Guarantee allows you to secure your home or investment property when you need to, without having to use your own money until you’re ready to settle…giving you the Power To Purchase. Deposit Power is the largest issuer of deposit bonds in Australia. CBL Insurance Ltd is the largest and oldest issuer of Credit Surety in New Zealand, established for over 40 years, and writing insurance in over 25 countries.
The good news is that mortgage products have become fairly flexible, as long as you plan around them properly. So if you’ve got plans to start a family and are reliant on two incomes, or dreaming of your OE in Spain for a year, we can help you figure out how to structure your mortgage around those plans.
Starting a family
We deal with lots of young professionals who are planning on starting a family, but whose large mortgage also means they rely on two incomes.
The key to starting a family is planning your finances in advance.
- You need to be able to cope on one income for up to 12 months. What will your monthly shortfall be?
- Take into account your higher living costs once your partner goes back to work – this will usually be around $1,500 extra a month.
- Put all of your savings into the mortgage using revolving credit. Aim to repay enough so that you can cover at least 12 months of income shortfall. With revolving credit you can access the funds you pay off at any time.
Provided you own more than 20% of your home, you can also put your mortgage onto interest-only for a while. This will reduce repayments to cover any shortfall.
You’ll get 12 weeks paid parental leave, and if your household is earning less than $80,000 while one of you is off work, you could be entitled to Working for Families benefits too.
With the right planning, you’ll be able to stress less about your finances so you spend your energy enjoying your new family.
We can help
- develop a personal mortgage plan specifically for you. This will help you plan your finances before starting a family. We can then review your plan every year to make sure you stay on track.
- arrange life and health insurances so that you’re well covered, but not paying too much.
Used properly, an equity release mortgage (ERM) can be fantastic for people who own property and are on a limited income.
With an ERM, you can borrow against the value of your property with no need to make repayments. The interest is added to the mortgage balance and the mortgage is repaid when you vacate the property and the home is sold.
A lifetime guarantee means you can stay in your home for the rest of your life, and a no negative equity guarantee stops the mortgage ever being more than the value of your home. In simple terms, you still own your home and no one can kick you out.
We can discuss whether or not an equity release mortgage is right for you as part of our retirement plan service.
Features and benefits
- The amount you can borrow depends on your age (at 67 you can borrow up to 22% of the property value, at 80 35%, and at 90+ 45%).
- The mortgage has a no-negative equity guarantee so that the loan balance can never exceed the value of the property.
- Establishment fees range from $695 through to $895. There is an additional charge for a property valuation (usually about $500) that can be added to the loan. It is also compulsory to get independent legal advice, which will set you back at least $500. So total up front costs are close to $2,000.
- Fixed and floating rates are available, although we don’t recommend a fixed rate for life because of the potential cost to you if you repay the loan early.
Using equity as part of your retirement plan
Planning for your retirement can be tricky – it’s very difficult knowing how much you have to spend every year so that your savings last your whole life. Equity release can act as the insurance buffer for your retirement savings.
Knowing that you can access equity from your home (and that property prices appreciate) you can budget to spend your other investments in the short term. You’ll have more cash to have more fun, and then, if you live longer than you expect (always good news), you can fall back on the equity in your home.
Something else to consider if you want to grow your savings but still need regular access to your money could be Squirrel Money. Squirrel Money Investors get returns of around 8% p.a. which is paid out monthly instead of at the end of the term. There are 2, 3 and 5 year term options and we operate a reserve fund to help protect your hard earned money against Borrower default (provided the reserve fund has sufficient funds available).
With severe restrictions on borrowing with less than a 20% deposit, one way around the rul...Read More ›