Since restrictions have been lifted, it is now possible to buy a house with as little as a 5% deposit (95% LVR). With this opportunity a question that comes up frequently is “should I buy now with a lower deposit or save up and buy later?”

Although there is never a definite ‘once size fits all’ response to this question, I thought we could attempt to analyse the different scenarios in a case study.

Scenario 1: Buy now with a 5% deposit
Scenario 2: Continue to save up and buy with a higher deposit

In each scenario the applicants earn the same amount and for the purpose of this study let’s assume that all other variables (property value, regional growth, interest rates, credit ratings etc) are the same.

Start date: January, 2012
House price at the start of study: $465,000
Interest rate: 5.5%
Resident Withholding Tax Rate (RWT): 17.5%
Term: 30 years
Gross combined income: $80,000
Deposit amount: $23,250
KiwiSaver: None
Number of Applicants: Two
Dependents: None
House price value increase: 4.5% (based on average annual compounding rate from 2007 to 2016)
Figures are based on the national averages between 2007 and 2016

To conclude the study we will compare the difference in the financial position for each scenario.


First off, let’s look at the expenses. The household expenses are based on the average household expenditure for 2016 and adjusted for inflation to estimate expenses for the previous years in the study. Housing expenses are the specific costs relating to the accommodation. This includes: rental costs, mortgage repayments, house insurance, property rates and other housing costs. The household expenses are the total living costs incurred by the people living in the house. Housing expenses for home-owners were on average 77% higher than that of renters resulting in an average of $917.23 higher monthly housing expenses.

In the 10 year period between 2007 and 2016, the average house price increased by 5.1%, although the effective annual compounding rate came to 4.5% as a national average. Deposit (savings) rates were an average of 4.4%. The effective after-tax deposit rate came to 3.6%. This is the figure used as a fixed savings rate for the purpose of this study. Annual housing expenses for home-owners increased by an average of 17% more when compared with rental costs.

Although the scenario comparison is done over five years between 2011 and 2016, the average rates over the past 10 years were used to give a more conservative picture. This means that the results show an average outcome through good and bad economic times which had the greatest impact on house value and deposit rates.

The results:

Comparison 1:

Assuming that both scenarios have the same average monthly household costs and all savings are committed to a savings account earning 3.6% interest (after tax), this is what the results would look like:

 After five years, the net difference in their financial position would be $142,247.87. The accumulated wealth for the home-owner includes: deposited savings ($493.75 per month), increase in property value and principal paid on the property. The accumulated wealth for the renter includes their savings of $23,250 at the start as well as $493.75 a month thereafter. After five years the renter would have saved to around an 11% deposit on the properties value at that time.


Comparison 2:

In reality we have seen that the home-owners average monthly household expenses would be around $917.23 higher than that of the renter. So to push the study a little further lets assume that the home-owners average household expenses are $458.61 higher than the average and the renters expenses are $458.61 lower than the average household expenses. With this, the home-owner would only be able to save $35.14 a month and the renter would save $952.36 a month. The results can be seen in the chart below:

The difference in their financial position is now $83,180.62. This is a significant improvement on the comparison with equal expenses and presents a more realistic case, however the home-owner is still in a better financial position. After five years, the person renting would have saved up for a 16% deposit and would still have another two years to go in order to have saved up for a 20% deposit on the property in that particular year. 


Using average figures across New Zealand it it would appear that a person is better off buying at an earlier stage with a lower deposit than waiting to have saved up to meet the 80% LVR threshold (20% deposit).


This comes with some caution:

  1. When you buy with a lower deposit, you will most likely pay a higher interest rate on your loan. You need to be able to afford the loan. Although you might earn enough to pass standard affordability criteria, it is important to ensure that the repayments will be manageable for your particular budget and income.
  2. In reality, the growth in property value will behave differently to the past average over 10 years. You could buy at a time when values increase significantly more or less than the average in this study which would have very different results again. In some economic cycles property values could also reverse.
  3. Historical figures do not a give a definite indication of what they will be like in the future.
  4. Use a professional to have a look at your particular situation and assess what the best steps would be for you.
  5. There are other investments that could provide a better return than that of the savings deposit and could change the results of this study.  KiwiSaver is one example of this. Note that there is generally a higher risk with higher returns. If you are preparing to access your funds in the near future, it is safer to opt for a lower risk investment or a conservative KiwiSaver fund.



  1.  Reserve Bank of New Zealand – Key household financial and housing statistics;
  2.  Reserve Bank of New Zealand – Interest rates on lending and deposits
  3.  Statistics NZ – Household Expenditure Statistics
  4. Ministry of Business, Innovation and Employment – Rental Bond Data


Thank you for reading this case study. I welcome your comments and questions. If you have any concerns or recommendations please feel free to contact me.