First-home buyers may ditch Kiwisaver

NEW ZEALANDERS helped into their first home under KiwiSaver are likely to abandon their retirement savings plan as they focus on dealing with their debt, experts say.

Government figures have revealed the skyrocketing popularity of the provision, with 11,000 New Zealanders withdrawing $120 million in savings to get on the property ladder in the year to March.

Banking and KiwiSaver analysts say the financial strain placed on new homeowners means many are likely to be unable to meet KiwiSaver contributions.

Michael Littlewood, co-director of the Retirement Policy and Research Centre at Auckland University and a KiwiSaver critic, said strain imposed on heavily indebted young Kiwis meant it made little sense for many to maintain KiwiSaver payments. ‘‘Saving beyond that [purchase] doesn’t make a lot of sense because you would be better off reducing debt, generally speaking.’’

The scheme was likely to be driving the prices of houses within the KiwiSaver band up, although this was disputed by real estate experts.

‘‘You have to assume that the owners of the houses that are suitable for first-time buyers are probably getting a higher price for those houses because they are suitable for KiwiSaver first-home buyers,’’ Mr Littlewood said.

‘‘It’s the old story that the unintended consequence of a wellintentioned piece of public policy often ends up rewarding people that it wasn’t intended to reward.’’

Dr Claire Matthews, of Massey University’s School of Economics and Finance, agreed but said the impact was not likely to be great as those using the scheme had limited budgets. Many first-home buyers would be abandoning their super contributions because of the amount they were being forced to borrow.

Predicted rises in interest rates would worsen this, she said.

NZ Funds Management head of KiwiSaver Jonathan Butler said it was a ‘‘fairly safe assumption’’ that KiwiSaver contributions declined after the purchase of a house.

Prime Minister John Key said people removing themselves from KiwiSaver was temporary.

‘‘I think there is a natural sort of cycle that most people go through that earlier on involves them buying a home and as the years go by focusing more heavily on their retirement and building up that nest egg . . .’’

BNZ chief economist Tony Alexander said the KiwiSaver provision was adding to the high demand for houses because it was putting home ownership within reach of more people.

Mr Key said he did not think the scheme was ‘‘overly’’ affecting house prices.