How To Get A Mortgage For Your First Home In New Zealand

Understanding the basics and preparing early can make the mortgage process easier to work through. This guide outlines common mortgage structures, documents, affordability checks and application steps so you can have better-informed conversations with lenders, advisers and your solicitor.

Understanding Mortgage Types in New Zealand

The mortgage structure you choose affects repayments, flexibility and total interest cost. Consumer Protection notes that borrowers may need to decide between fixed, floating or a combination of rates, and between structures such as standard loans, revolving credit and offset loans.

Fixed-Rate Mortgages

A fixed-rate mortgage offers repayment certainty for a chosen period, often from six months to several years. It may suit buyers who value predictable repayments, but it can also reduce flexibility and may involve break costs if the loan is changed early.

Variable-Rate Mortgages

Variable or floating-rate mortgages can move as market interest rates change, including changes influenced by the Official Cash Rate. Repayments may fall if rates drop, but they can also rise, so borrowers need room in the budget for changes.

Interest-Only Mortgages

An interest-only period means repayments cover interest but not principal for an agreed time. This can reduce repayments during that period, but the loan balance is not being reduced, and lenders decide whether the structure is suitable for the borrower and loan purpose.

Revolving Credit Mortgages

Revolving credit mortgages function similarly to overdrafts, offering flexibility in how you borrow and repay. Interest is charged on the amount used, and the benefit depends on how consistently surplus income or savings reduce the balance.

Offset Mortgages

Offset mortgages link your savings account directly to your home loan, using your savings balance to offset the mortgage principal. This reduces the interest payable, providing a flexible way to save on interest while maintaining access to your savings.

Essential Documents for Mortgage Applications

Preparation can make a mortgage application easier. Lenders need enough information to assess identity, income, expenses, debts, deposit source and whether the loan is affordable.

Having these documents ready may reduce avoidable delays, but each lender or adviser can ask for different evidence depending on your circumstances.

Assessing Your Financial Health and Home Loan Affordability

Understanding your financial position before applying for a mortgage helps you prepare for a lender's affordability assessment. Start with these areas:

Income and Expense Review

Create a detailed budget of your income versus your expenses. This helps you understand how much disposable income is available for mortgage repayments.

Deposit and Savings

Govt.nz says most home loan lenders require a minimum 20% deposit. Some eligible first-home buyers may be able to use the Kāinga Ora First Home Loan with a 5% deposit, but they must meet Kāinga Ora criteria and the participating lender's lending criteria.

Learn More: How much Deposit do I need as a First Home Buyer?

Debt-to-Income Ratio (DTI)

Your debt-to-income ratio compares total debt with gross annual income. Reserve Bank DTI restrictions came into effect on 1 July 2024 and limit how much bank lending can go to borrowers with high debt relative to income.

Lower existing debt can improve a borrower's DTI position, but banks also apply their own affordability assessments, credit criteria and other lending rules before deciding whether to lend and how much.

Credit Score

Your credit record can be part of a lender's assessment. Govt.nz says New Zealand has three credit reporting agencies - Centrix, Equifax and illion - and you can request a free credit report from any of them and ask for incorrect information to be corrected.

Learn More: The Impact of Credit Scores on Mortgage Approval

Mortgage Pre-Approval

Pre-approval can help you understand the price range a lender may consider before you start making offers. Settled.govt.nz says it is a good idea to have a pre-approved home loan before looking, because knowing how much you can borrow helps you search in your price range.

Bank or Mortgage Broker?

With a mortgage pre-approval, you have options. You can go directly to a bank. This can usually be done with a bank lender at a branch, over the phone or online.

Alternatively, you can use a mortgage adviser or broker. Consumer Protection says brokers are a type of financial adviser who deal with lenders on your behalf and can shop around, but not all lenders work with brokers. The FMA says most mortgage advisers work on commission from lenders, some may also charge fees, and advisers must disclose how they are paid and any fees that may apply.

Learn More: Should I Use a Mortgage Adviser or Go Direct to the Bank?