The property market may have softened over the last six months, but with the average house price still over $900,000, buying in Auckland may seem like an unattainable dream. Under the current LVR restrictions, home owner-occupier lending requires a 20 percent deposit*. So, if you aren’t earning over three times the average household income, or saving since you were five, reaching that figure may take you until your first pension payout comes around. Fortunately, there are government schemes that can help make your first home ownership dream a reality.
So, what’s the deal with KiwiSaver?
If you have been paying into a KiwiSaver fund for at least three years, you may be eligible to withdraw from your account to put towards the deposit or settlement of your first home, or land on which you plan to build.
Each individual case is different, but to qualify you must fit these criteria
• You must have been a contributing KiwiSaver member for three or more years.
• The purchase must be for a home or land to build a house that you intend to live in, not an investment property.
• The house must be in New Zealand.
• You must not have made a withdrawal from your KiwiSaver for this purpose before.
How can you use KiwiSaver for Your First Home?
You can withdraw all but $1000 from your KiwiSaver account including your contributions, employer contributions, returns on investments and any member tax credits. KiwiSaver withdraws can be joined if buying in partnership.
Your KiwiSaver withdrawal can be used as part of the deposit (before the sale becomes unconditional) or as part of the settlement. If the sale does not go ahead, the money will be refunded to your KiwiSaver account.
First time buyer versus saving for retirement
You would have invested into a KiwiSaver scheme to set yourself up with a comfortable retirement, so why would you release money from it rather than save for ten more years or borrow a larger home loan? Unfortunately, receiving help to get on the ladder is the reality for most home buyers.
Other than necessity, using your KiwiSaver to buy your first home means that you will need to borrow less, having you mortgage free faster. The capital gains on a house will also increase far more than the interest on your KiwiSaver.
If you have enough savings and contributions from your KiwiSaver account to reach your deposit, it is advisable to act early. The longer you wait, the number of years on which you can build interest on your KiwiSaver will be reduced.
What if I have owned a home in the past?
If you have previously owned a property, there are exceptions if it is considered that your financial situation; taking into account your assets and income, is similar to those who have not owned a home before. In this instance, Housing New Zealand may have to verify that you meet the criteria. Your mortgage adviser can talk you through the process.
If you are still unsure about how to use your KiwiSaver for your first home purchase, contact me and I will help you through the process. I can even find you the best rates on your mortgage when the time comes around.
*If you are struggling to reach the 20 percent requirements, I may be able to help with a low deposit mortgage. Give me a call and we’ll get you on the right track to being a home owner.