Savings — the first home question
Q For the past 10 years I have been working on a farm with accommodation provided. I have been contributing 10 per cent to KiwiSaver and now have over $120,000. I am looking at changing jobs soon. This will mean finding a house to rent or buy near Tauranga. If I find a house to buy this will be my first home and I will use my KiwiSaver for the deposit. My question is, do I have to use all my KiwiSaver money (less the $1000 kickstart)? Or can I leave some in there for my retirement? I am 42 years old.
A No, you do not have to use all your savings in a First Home Withdrawal. Who is your KiwiSaver provider? You can learn a lot just by reading through their First Home Withdrawal application form. The form will let you know what documents are required, what information you need to provide and when you should submit the application. Each provider has their own form, but the rules are the same for everyone.
Your provider will ask if you want to make a full withdrawal (leaving $1000 which can’t be withdrawn) or a partial withdrawal. If you wish to make a partial withdrawal, you can specify how much you want.
You may be eligible for a First Home Grant of up to $5000 from
Ka¯ inga Ora (up to $10,000 for a new home). There is however an income cap for buyers and a price cap on houses. The price cap has become a significant hurdle for first home buyers, but the Government has announced an increase from 1 April 2021. The price cap in Tauranga will increase from $500,000 to $525,000 for an existing home and from $550,000 to $600,000 for a new home. The price cap in other areas is also being increase, in the case of Auckland it will go up to $625,000 for an existing property. The income cap for an individual is going up from $85,000 to $95,000 from 1 April 2021. These limits do not apply to the First Home Withdrawal, just the First Home Grant.
So how much should you withdraw from your KiwiSaver? You won’t want to start again with just $1000. But the less you withdraw, the more you will have to borrow. While interest rates are at historic lows, a bigger mortgage will mean higher repayments. It may be a good idea to allow yourself some wriggle room by taking a bit more out of your KiwiSaver and keeping your mortgage down. This will help in future if and when interest rates go up. Making a larger withdrawal now for a smaller mortgage may also enable you to continue contributing to your KiwiSaver at your current rate of 10 per cent.
Buying your first home is a big step. Don’t rush into it without getting advice. A mortgage broker is a useful first person to talk to, as they can go through all your financing options before you start house hunting.
Shelley Hanna is a Financial Adviser with Peak Portfolio Management Ltd which holds a licence FSP702451 issued by the Financial Markets Authority to provide financial advice services. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to shelley. hanna@peak.net.nz