KiwiSaver and your first home

Every year thousands of New Zealanders buy their very first home. It may not be a palace, but they achieve the dream of home ownership.

There are two ways to use KiwiSaver towards a first home purchase:

1. The first home deposit subsidy: For those who qualify the government pays a first home subsidy of up $5,000 per member ($10,000 per couple). That’s right “free”. There are income and price caps, so anyone who wants to use KiwiSaver should make sure he or she qualifies before going house hunting. Read the details here.

2. Savings withdrawal for first home. This allows any member – whether or not he or she qualifies for the subsidy – to withdraw their own and their employer’s contributions towards a first home. There is no income or house price cap for this. Anyone can do it. That can add up to many thousands of dollars for some singles and couples. Again there are conditions – read more here.

That’s not the end of the story. There are some fish-hooks in the system. First of all, there is lots of paperwork. The KiwiSaver first home withdrawal application is made with the KiwiSaver provider and the first home subsidy forms for Housing New Zealand. As with all paperwork it takes time. HNZ takes seven days to assess the paperwork and then sends a confirmation letter which should be presented to the lender. It then pays the money to the lender on the day of the settlement.  It is possible to apply for pre-approval, which lasts for 180 days, which makes house hunting easier.

There is, unsurprisingly, some paperwork to be completed for a first home withdrawal. It will need to be returned along with a copy of the sale and purchase agreement, a solicitor’s letter of undertaking and a deposit slip for the solicitor’s trust account. This needs to be presented to the lender at least five days before settlement.

The fish-hook is that although the KiwiSaver withdrawal and subsidy are designed to help pay a deposit on a home, the money is not paid when the buyer needs actually pay the deposit. It is paid on settlement. This can be a real problem for people who don’t have sufficient money to pay the 10% deposit. Lenders are getting used to this problem, but it makes sense to use a mortgage broker who can negotiate to reduce the initial deposit or find ways to borrow it short term.

Beware as well, neither the KiwiSaver provider nor the HNZ can pay any money after the settlement. If KiwiSavers miss this date, they’ll get nothing from HNZ or their KiwiSaver provider towards the purchase.

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