Feature article
Where will your deposit come from?
Your deposit does NOT have to all come from one place.
Last updated: 18 September 2024
Remember, everyone is on their own financial journey. Whether you’re buying your first home at 20 or at 50, don’t compare yourself to anyone else – investing in property at any stage of your life is an incredible achievement.
“Comparison is the thief of all joy”
Firstly, we want you to pat yourself on the back; not only are you about to embark on the amazing journey of buying your first home, but you’ve been disciplined enough to put aside time to not only do this course and further educate yourself, but to build a deposit for this home purchase. That’s no easy feat!
The average house price in New Zealand is about $900,000. This means most people think they’ll need an approximately $180,000 deposit to buy a house. However, this isn’t the case for everyone, and we’re going to explain why soon.
Saving a deposit, whatever the size or your financial situation, is a massive effort.
Getting your deposit together is such an important part of the home buying process, especially because it’s going to be different for every single person.
We speak to people so often who think they need to have hundreds of thousands saved up, and that they’re so far away from having a deposit big enough. It’s sad, because people who might actually be able to get on the property ladder think it’s way out of reach, when, in fact, it might not be!
You’ll be pleased to know that there are 5% deposit options, 10% deposit options, and government backed schemes that are basically free money to you! So, buying a house might be more achievable than you think.
There are also a number of things you can do today to increase your deposit, even if buying a house isn’t for a wee while in the future, for example:
- Upping KiwiSaver contributions
- Negotiating a pay rise at work
- Taking a trip to the ‘bank of mum and dad’ if they’re in a position to help (which we realise is a huge privilege).
Where will your deposit come from?
1. KiwiSaver
If you know The Curve, you know we love KiwiSaver. It's a great way to invest consistently and regularly. One of its brilliant benefits is that you can dip into your KiwiSaver to help pay for house deposit. Over 90% of people buying their first home use their KiwiSaver, and those KiwiSaver funds tend to make up about 40 – 50% of peoples’ deposits. Have you checked your KiwiSaver balance? You might have more in there than you think!
There are some conditions to taking your KiwiSaver out:
- You need to have been contributing for a minimum of three years. This doesn’t have to be consecutive (in a row). If you have been contributing for two years, then took a six-month savings suspension, then contributed for another year, you’d be eligible.
- You need to be buying your first home. There are some exceptions where you can withdraw it for a second home, but this is only in very few special cases.
- You can take out all your contributions, your employer’s, the Government contributions and all the investment gains earned – everything! But you do need to leave $1000 in your kiwiSaver Fund (so not quite everything).
If you’re not quite ready to buy your first home;
- Use this time to review your KiwiSaver provider. Is it the best one for you? If you have your KiwiSaver with a bank, check what returns you are getting vs. other dedicated KiwiSaver providers like Milford, Fisher, Generate etc – you might be surprised with the differences!
- Review your fund too. aggressive or growth funds will typically offer better returns, so, if you aren’t planning on buying a house for a while (and by while we mean 5+ years) this could be a good option. But be aware of what might happen if the stock market drops and you lose money, or it doesn’t do as well as you’d hoped. If you’re planning on using it soon, you might want to consider moving it to a more conservative fund.
REMEMBER: If you don’t use your KiwiSaver for your first home, you won’t have another chance to access this money until retirement (at 65 years of age!).
For more information on withdrawing your KiwiSaver for your first home, the IRD has a great website here.
TIP: If you aren't already a member of KiwiSaver, the sooner you join, the sooner your employer and the Govt will be helping you grow your money. This will help you achieve your financial goals faster!
2. Savings
Hopefully, if buying a house in the near future is on your radar, you have started to build a (maybe small) nest egg of savings already – great!
There are a number of ways to grow your savings (especially if you want to buy your first home in the next five years):
- A term deposit: This is where you give the bank the money an amount of $$ for a specified period and you get a guaranteed return for that period. For example, you can see below the returns from BNZ for term deposits differ depending on the time horizon – you get a higher return the longer you leave it with them.
- Cash funds: These are like term deposits, but you don’t invest in them through your bank, you invest in them through a fund manager e.g Milford, Fisher, Kernel etc. They essentially are low risk funds that invest in safe, but low cash-like assets on your behalf. Their cash funds usually have returns similar to term deposits.
- A pay rise: Why not negotiate that pay rise you have been putting off? A pay rise can make a huge difference to your financial independence especially, if you save the difference. We have a great resource here if you’re feeling a little bit scared about having that chat with your manager.
- Make sacrifices: What can you sacrifice in the short term to gain in the long term? Maybe that holiday could be postponed, or upgrading your car put on the back burner.
- Create a budget: A budget is a great way to make sure you’re saving as much as possible. If you don’t already have one, let us know and we can send you our Curve one to help you get started.
If you’re thinking of buying a house in, say, five years or more, you could grow your savings by investing in more risky but higher returning investments like;
Exchange Traded Funds (ETFs)
These are exchange-traded funds. They’re like the funds mentioned above, but they trade on the stock exchange like stocks. They provide instant diversification, which is essentially investing in lots of things at once. The best way to think about ETFs is like a fruit salad. Instead of having to pick just the bananas, oranges or apples, you get a scoop of fruit salad and hey presto! You have a little bit of all the fruits. Yum!
Equity Funds
This is when you give money to a fund manager to manage for you. These are like the cash funds mentioned above but they invest in more high-risk things, e.g stocks. Therefore, they will generate better returns than cash funds, meaning you can grow your money faster. Fund managers like Milford, Fisher, Kernel etc. have a large selection of equity funds for you to choose.
The stock market
You don’t have to use funds to grow your savings, you can pick stocks or companies to invest in yourself. You may have heard of some of the great platforms that let you do this e.g Sharesies, Hatch or Stake. These platforms allow you to choose companies like Tesla, Amazon or Apple, to invest in. How fun!
If you want to learn more about these types of investments, you should look at doing our other course, The Foundations of Investing, which is all about growing your wealth in the stock market.
3. Bank of mum and dad
Did you know over 70% of NZers get help with their deposit from their parents?
While this might seem like a high %, we totally understand that this might not be an option for you. Getting a helping hand from your parents, or any family member or friend, is such a luxury and privilege that isn’t a reality for a lot of people.
However, if your parents have got equity in their property (refer back to Module 2 for our definition of equity), then they could use that to gift to you.
A gift is when your parents literally give you all or some of the money for your deposit and don’t expect it back – how generous!
The other option is a Deed of Acknowledgement of Debt (DOAD). This is like a gift in that the money doesn't need to be repaid on a regular basis and isn't being charged interest, but your parents could ask for it to be paid back in the future. For example, you could have an agreement with your parents whereby you don't have to pay this money back until you sell the house. This is essentially a fancy name for ‘getting a loan from your parents’!
A gift vs DOAD: gifts are more favourable to banks as these are a gift with no expectation of repayment – but either would help!
Remember, there’s no shame in asking anyone for help, your parents included. They could say no, or not be in a financial position to help you, but it could always be worth asking!
TIP: If your parents allowed you to do so, you could also move back home and save money on rent. This will also help with your deposit as one of our biggest outgoings is generally rent!
4. Other things
This is the fun part where you get to be creative!
- Do you have stuff laying around you could sell? E.g clothing, bikes, camping equipment, furniture – anything! It all helps!
- Do you have a car you don’t use much that you could rent out? Or sell?
- Could you pick up some extra hours at work? Do some petsitting or babysit?
- Could you negotiate that pay rise?
Tip: remember, don’t put every dollar you own towards your home deposit. You’ll still need to pay for things once you have made your home purchase e.g furniture, insurance etc. We'll give you an estimate on this amount in later modules!
Financial Disclaimer
The Curve and The Curve Classroom course has been prepared solely for informational and educational purposes. Any information provided and serviced described in this website are intended to be of general nature and provide general information only. The opinions expressed by The Curve do not constitute investment advice and are not to be viewed as investment or financial advice. It does not take into account your investment needs or personal circumstances. Independent advice should be sought where appropriate. Should you require financial advice you should always speak to a Financial Adviser.
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