By Frank Newman on 22nd February 2014
KiwiSaver is now well embedded into the savings psyche of New Zealanders and providing significant benefit to first home buyers. It’s certainly helping overcome the deposit obstacles that have been created since the Reserve Bank imposed LVR [loan-to-value ratio] restrictions on the banking sector.
To recap on what those benefits are:
- Free money. Up to up to $5,000 per KiwiSaver account (i.e. $10,000 for a couple). That’s $1,000 a year for every year of membership up to a maximum of $5,000.
- First home buyers are able to ‘unlock’ their KiwiSaver funds and gain access to their contributions, their employer contributions, and the investment returns accrued. (The $1,000 kick-start and the member’s tax credits can’t be accessed.) So a couple who have not owned a home could both opt into KiwiSaver, put in 3% of their salary for 5 years, then use their contributions, plus their employers contributions, plus the $5,000 subsidy each would receive to purchase their first home. For most people the will be tens of thousands of dollars in free money.
There are, of course, some conditions:
- You must be over the age of 18 and not previously received the subsidy.
- It must be used to buy your first home; but there is an exception. Previous home owners (known as second-chance buyers) may be entitled if they are in the same position as a first home buyer and they do not have realisable assets totaling more than 20 percent of the house price cap for the area they are buying.
- You must have contributed at least 2 per cent of your income to a KiwiSaver scheme for at least three years.
- The homebuyers must live in the house for at least six months. You cannot use the deposit subsidy to buy an investment property, but there are no restrictions on renting the property later on.
- Individuals earning more than $80,000 a year are not eligible, nor are couples with a combined income greater than $120,000.
- You must have a deposit of at least 10 percent of the purchase price. That includes the money you will receive from your KiwiSaver.
- The funds can only be used to buy a ‘cheaper’ home, and that threshold value depends on where you live.
- In Auckland it must be worth less than $485,000,
- $425,000 in Wellington city and Queenstown lakes,
- $400,000 in Christchurch city and Selwyn District,
- $350,000 in Thames/Coromandel, Hamilton City, Western Bay of Plenty, Tauranga City, Kapiti Coast , Porirua City, Hutt City, Upper Hutt, Tasman/Nelson, and Waimakariri and
- $300,000 elsewhere.
The benefits apply to buying land, BUT a house must be built within 12 months of purchase (and have a Code Compliance Certificate to prove it). You must also show:
- The land is ready to build on, and
- You have funding in place to pay for the construction of the building, and
- The total cost of both the land and the house or apartment is within the house price caps mentioned above. To do this you would need to provide a copy of a fixed price contract showing the completed cost, and a copy of the agreement for sale and purchase for the land.
Anecdotal evidence suggests some would be first home buyers are missing out on the KiwiSaver benefits because they did not follow the rigid process involved in accessing their finds. Here are some key points:
- The subsidy is paid directly to your solicitor on settlement day. You can’t get the money before or after settlement date.
- The application for the funds must be made to Housing New Zealand at least four weeks before the settlement date.
- Processing the application takes about seven days. If eligible you will receive a letter confirming your deposit summary, and paperwork will be sent to your solicitor confirming the availability of the funds.
A would be buyer is able to receive a deposit subsidy pre-approval. That is valid for 180 days.
In other words, don’t leave your application to the last minute. There are forms to fill in, boxes to tick, and hoops to jump through.