Why buy a first home using KiwiSaver?

Because it’s a smart idea.

When it first started, KiwiSaver was primarily intended as a superannuation scheme for retirement, but the government also realised how important owning your own home is to retirees.

The KiwiSaver First Home Withdrawal means that after you’ve been a member for three years, you can withdraw your money for a first home deposit, as long as you leave no less than NZ$1000 in the account.

KiwiSaver has been the single biggest change in the past century helping Kiwis buy their own homes. Here’s why:

• It makes saving automatic. You’re putting aside a percentage of your pay without having to think about it.
• Your employer puts in money, too, currently 3 per cent of your pay.
• The government pitches in as well, giving you $521.42 a year. Just put in at least $1042.86 between 1 July to 30 June each year to get this ‘government contribution’.
• And there are other cool things you can get to help you buy a house, like the First Home Grant and the Kainga Ora First Home Partnership Scheme. Read on for more on those.

If you joined when the scheme started in 2007 and claimed the full government contribution for 14 years, you’d be $7,300 richer by now (plus returns).

Who can withdraw for a first home?

When you’re buying your first home you may be able to make a one-off withdrawal of most of your KiwiSaver savings – as long as you’ve been a KiwiSaver member for at least three years.

You may even qualify if you have owned property previously, but you’re in a situation similar to a first home buyer, say after a divorce.

What’s the first step?

Do your research.

How much do houses sell for where you’re looking? What help can you get to get a deposit, from friends and family, or the government? What’s your timeframe?

“In our experience, a lot of people underestimate the amount of time they need to get enough money to buy a house,” says David Copson, Booster’s Head of Growth.

“We have a process that we take first home buyers through, to work out their goals and timeframes.”

He says one of the most important first steps is to make sure you’re realistic about when you’re going to buy your first home and how much you expect to spend.

“Are you currently using KiwiSaver, how much are you saving, and do you have any other funds? Where is that going to get you in two years? And where do you want to buy that first house?”

Calculators like those on KiwiSaver provider websites and at www.Sorted.org.nz will tell you roughly how much money you’ll have in one year, two years or up to 20 years. Just put in:

• Your date of birth.
• Your annual pay.
• Your contribution rate.

Copson says there’s a free
calculator on the Booster website, www.booster.co.nz, that lets you dial up your contributions from 3 per cent to 10 per cent, to see how much faster you could reach your goal.

Do your numbers first. He says sometimes it’s a wakeup call for buyers to discover they’ll have to push out their timeframe a year or more if they want to buy in the city.

Which provider is best for first-home buyers?

Every KiwiSaver provider will let you withdraw from a KiwiSaver account, if you meet the criteria.

But the services providers offer vary widely. Ask yours to see which services it provides.

Some online-only providers just offer an investment service and online calculator. Others have free advisers to help first-home buyers plan and save.

However, they will all process your application and pay out your deposit in just the same way as a provider that offers free advice. There is no cost to this service.

“It may pay to ask your provider what their average processing time is to pay out a first home withdrawal,” says Copson.

“There are stories of some very nervous buyers coming down to the wire. If you'd prefer to save yourself the stress at what can already be a nail-biting time, this may be a consideration for you.”

They will give you a letter to take with you to your lender, showing the amount you are able to withdraw from your KiwiSaver account.

Growth, balanced or conservative?

If you’re saving for a deposit, which fund should you be in?

There is no right answer. It starts with how comfortable you’d be if the market moved suddenly down.

If you know that you’d panic, choose a less volatile fund.

And the answer also changes as you get closer to buying the house, which is when you should dial back the risk.

Growth: If you’re five to seven years out, you could be in a growth fund, for maximum returns. But you’d need to be comfortable with seeing some ups and downs in your balance.

Balanced: If it’s three to five years to buying, you might consider a balanced fund, with less risk than a growth fund, but still with some ups and downs.

Conservative: When you’re within a year or two of buying, it’s safer to switch to a conservative fund. Growth will be slower but you’re less likely to be hit by sudden market drops just as you’re about to buy.

Free money!

Who can say no to free money from the government?

If you’re eligible, the First Home Grant through Kāinga Ora could give you up to NZ$5,000 towards buying an older, existing home, or up to NZ$10,000 towards buying a new home or land to build on.

Copson says many people forget that if you’re a couple you can both apply for a grant.

“Each partner can apply for themselves, so instead of getting $10,000 towards the deposit for a new build, you could get $20,000 as a couple.”

To be eligible for a First Home Grant, you must:

• Be over 18.
• Have a deposit of at least 5 per cent of the purchase price of the house you want to buy or build, in KiwiSaver and/or other savings.
• Have earned less than the income caps in the last 12 months – NZ$95,000 or less before tax if you’re buying alone, NZ$150,000 or less before tax for two or more buyers.
• Not already own a property.
• Have been contributing at least the minimum amount to KiwiSaver for three years or more.
• Buy a property that is less than the regional house price caps – these limits vary by city and district council, see the Kāinga Ora website for these.
• Agree to live in your new house for at least six months.

Check your eligibility at www.kaingaora.govt.nz/home-ownership.

The First Home Loan

You might also qualify for a First Home Loan through Kāinga Ora.

As well as having a 5 per cent deposit, you need to meet certain criteria, including an income cap and regional house price cap.

You’ll also need to meet the lending criteria of the participating lender you choose.

First Home Partnership

First Home Partner is a little-known shared ownership scheme to help aspiring first home buyers whose deposit and home loan aren’t quite enough to buy a home that meets their needs.

Instead, you purchase a home together with Kāinga Ora, where Kāinga Ora becomes a part-owner, and you progressively buy them out until you own the home yourself.

‘Shared ownership’ means that you initially share ownership of the home with a third party who purchases the home with you (in this case Kāinga Ora).

You are the majority homeowner and occupier, and will own an increasing share in the home as you buy them out over time.

Find out more information at www.kaingaora.govt.nz/home-ownership.

What about after you’ve bought?

Once you’ve bought a house, don’t forget to reassess your KiwiSaver contributions, says Copson.

“Depending on how you feel about market ups and downs, you should go back into a more aggressive growth fund because your next goal is retirement, and that’s a way off.

“If your budget is tight with the new home loan, you might think about pausing your KiwiSaver contributions for a year, until you’re sure you can meet the cost of your mortgage without struggling.”

But Copson says people need to realise that KiwiSaver is important for their retirement.

“Definitely, you should get your KiwiSaver restarted as soon as you can.”