The New Zealand lending market has always been made up of main trading banks and non-bank lenders. Now most of you would not look to the non bank lenders for loans as they would traditionally set their interest rates higher than the banks which would deem them as non competitive to the New Zealand borrower.
With the Credit Crisis the non bank lenders were hit first and many have now left the market, the main one being GE (note GE will still lend for smaller personal loans and credit cards but they have stopped lending residential home mortgages). The impact of the changing landscape to the non bank lenders withdrawing from the market is lack of competition.
This ultimately means that the main banks have less to compete against and can tighten up their lending criteria. This is very noticeable at present.
First Home Buyers
For the past 2-3 years many first home buyers have stayed out of the market mainly due to the rising house prices and high mortgage interest rates. It was only a few months ago that a basic interest rate was over 9.00%.
For a home loan of $300,000 at 9.00%, the weekly payment would on average be $557.00
Now with average interest rates being 6.00% for the same home loan of $300,000 the new weekly payment would now be $415.00
These reductions in interest rates, and the easing of rising house prices has created an environment that first home buyers are now seriously looking at entering the market, but there is a downside and one that has many questioning whether they can even purchase a house.
The most significant change is the deposit required!
Over the previous few years lenders would lend up to 100% of the purchase price, this was deemed as quite safe as the housing prices were increasing. With the house market remaining flat or falling the lenders are now requiring a higher level of deposit.
For most lenders the general rule is 20% of the house purchase price is required as a deposit – that would mean for a $300,000 purchase $60,000 would be required! And for most first home buyers struggling with rent and smaller debts saving this type of deposit is not realistic.
So how can you get into your first home without this sort of deposit?
It’s time to talk to your parents! Many parents are also aware that the lending guidelines have changed and that it is also a good time to purchase so they may in fact be in a position to help. There are 3 ways this can work.
1.    You can purchase a new home and receive 100% finance but this house would be secured over the equity in your parent’s house. Your new home would be placed with the same bank as your parents, and they would be acting as guarantor.

2.    The same as option 1 but you would ask the bank to limit the guarantee from your parents to only 20% of the purchase price. This is a safer option for your parents as they are only guaranteeing 20% or following the above example $60,000 (instead of the full purchase price of $300,000)

3.    Your parents (or you and your parents) can borrow the deposit amount required from your parent’s bank. This money is then given to you as a deposit (either as a gift or a loan) and you would then seek to arrange the balance or 80% from any lender of your choosing. Again this reduces the risk to your parents to only the borrowed amount on their home and it gives you the ability to organise finance at any lender.
I would expect that you can get better terms that 80% finance if you have a strong income and employment history, good account conduct and little or no other debt.