JUNO Spring 2020

Most New Zealanders want to own their own home. And for most people, the best way to save for a home is in KiwiSaver.

Everyone with a KiwiSaver account can withdraw their money, except $1,000, to buy a first home. And people on lower incomes may also qualify for extra money from the government.

What’s more, some people with modest assets who previously owned a home, but don’t now, may also be able to get a grant.

Even if you’re not eligible for a grant, you’ll save much more in KiwiSaver than you will elsewhere. Your savings will be boosted by the government contribution and, in many cases, by employer contributions.

The only possible negatives are that you have to be in KiwiSaver for at least three years before you can make the withdrawal, and you have to contribute at a certain level to get the grant.

Will the rules change?

Some people worry that the rules could be changed, leaving them unable to withdraw their KiwiSaver money for a home purchase, but I can’t imagine that happening.

There’d be such an outcry that I reckon no government would dare to do it.

Having said that, you might want to put your extra savings – over and above 3 per cent of your pay if you’re an employee, or $1,043 a year if you’re not, which is enough to get the maximum government contribution – into a similar non-KiwiSaver fund, perhaps run by the same provider.

That gives you more flexibility. Check, though, that the fees are not much higher there than in KiwiSaver.

What about risk?

If you’re saving for your first home, how risky should your KiwiSaver, or other fund, be?

• If you plan to buy the house within two or three years, you’re best off in a low-risk fund.

• If your home is still three to ten years away, a balanced fund is good.
• If it’s more than 10 years before you expect to buy, and you can tolerate the ups and downs of the share market, choose a growth, or even an aggressive fund.

Don’t get tripped up

The rules for withdrawing your KiwiSaver money to buy a first home are fairly straightforward. But still, check with your provider well in advance of buying to make sure you cross all the ‘T’s and dot the ‘I’s.

And if you’re hoping to get a grant, it’s important that you read the rules. Some people have been tripped up if they were, for example, buying land first and planning to build on it later.

Also, the government has adjusted the income and house price caps several times, and that’s likely to continue. And a few other rules have also been changed. So, keep an eye on this page: www.tinyurl.com/NZFirstHomeHelp.

Note that you can be pre-approved for a grant before you find a home. The pre-approval lasts 180 days. If you haven’t bought within that time, you’ll need to apply again.

Become a renter-landlord

If you can’t afford to buy near where you work and want to live, one way to get into the property market is to become a ‘renter-landlord’.

In a 2018 survey, BNZ asked ‘aspiring first-home buyers’ what they were prepared to do to get on the property ladder.

About 44 per cent – mainly in Auckland or Wellington – said they’d buy a property and rent it out, either in a cheaper part of their city or somewhere else in New Zealand.

The basic idea is, presumably, that you’re ‘in the market’, making it easier to buy your own home later. It’s not a bad idea, but you need to go in with your eyes open.

For one thing, you’ll probably kiss goodbye to KiwiSaver first home help. That’s because you can’t buy a rental property using your KiwiSaver money or a grant.

Those grants are available only if you live in your house for at least six months after buying it. And if you wanted to buy your own home later, you wouldn’t be eligible for the withdrawal or grant because you already owned a property, says a Housing NZ spokesperson.

There’s one way around this.

If you’re thinking of buying a rental in a cheaper part of town – as opposed to elsewhere in New Zealand – you could buy the property as your own home and live in it for at least six months, and then move elsewhere while keeping it as a rental.

Or, who knows? Maybe you’ll discover you like living there!

What to watch out for

There are also other concerns about becoming a renter-landlord:

• These days, in most cases you need a higher deposit – 30 per cent currently – to buy a rental property, compared with 20 per cent for your own home. Still, 30 per cent of $300,000 in a cheaper area is $90,000. That’s way less than 20 per cent of a million dollars ($200,000) in a posher suburb.
• If you sell the property within five years, you’ll probably be taxed on your gains under the so-called ‘bright line’ rules introduced in 2018.
• Property prices in many parts of the country seem to be slowing or even falling, and I wouldn’t be surprised if there are more widespread falls in the next few years. Also, price rises tend to vary hugely around the country, and even from suburb to suburb. Be prepared to possibly have to sell at a loss.

Sorry to be a wet blanket. The idea might still work well for you.

Other bright ideas

Other results of the BNZ survey of aspiring first-home buyers showed that:

• 30 per cent of the people would buy a shared property with their family.
• 21 per cent would go ‘tiny’ and buy an apartment or unit under 80 square metres to live in. And another 12 per cent would buy a tiny apartment or unit in another town to rent it out.
• 14 per cent would buy a shared property with friends.
• 19 per cent would buy land outside of the city they live in.

All these ideas have merit. Tiny properties are a bit of a trend. But you might want to try out the idea first by living in a caravan for more than a few weeks!

Getting help from family members – often parents, or even grandparents – to buy a first home is becoming increasingly common.

If you’re going to share a purchase with family or friends, I recommend you work out in advance what you will do if someone is unable to make agreed payments for a period, or if a relationship break-up changes how things work, or if somebody becomes disabled or dies.

Be pessimistic. It’s much better to work these things out first, than when the crisis happens.

Then put all the details into a formal agreement drawn up by a lawyer.

That sounds heavy and unnecessary, but I’ve seen families and great friendships break up for the want of such an agreement.

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