First Home Buyer's Guide to KiwiSaver
So, you are on the road to buy your first home? Welcome to the journey, for many kiwis this will be one of the biggest achievements of their financial life, and one of the largest investments they will ever make.
We have put together a guide so that you can make sure you are on the right track for every step of the journey in saving for and purchasing your first home.
1. Who is Eligible for a First Home Withdrawal from KiwiSaver?
Once you have been saving for three years with KiwiSaver, you may be eligible to withdraw your KiwiSaver fund to help buy your first home. You will however, be required to meet the following criteria:
- The property you wish to purchase will be your primary residence and is located in New Zealand;
- You have not owned your own property or land either solely or jointly with another person;
- You have never made a withdrawal from a KiwiSaver scheme to purchase a house in the past.
You may qualify for a second chance home purchase withdrawal if:
- You have held an estate in land previously, but no longer hold a share on property, AND,
- You are in the same financial situation as a first home buyer (certain criteria apply and you will need written approval from Kainga Ora confirming you meet the criteria before you apply).
2. What type of KiwiSaver fund is right for you?
Not all KiwiSaver funds are created equal, and which fund type you choose can make a massive difference as different types of funds offer different things.
- A GROWTH FUND: a higher allocation to stocks, with a corresponding potential for higher returns, but also a higher potential for ups and downs along the way.
- A CONSERVATIVE FUND: has a higher weighting to bonds and fixed interest assets, which means less ups and downs but also less opportunity for growth.
- A BALANCED FUND: This includes a portion of the fund allocated to growth stocks, but also some conservative assets to try to balance out the ups and downs of the market.
The decision for which fund to go in is always important, but it becomes extra important when thinking about your first home deposit.
The biggest deciding factor to what KiwiSaver fund you should be in is time, is how long you think you will be invested before needing to cash out for a first home deposit.
If you have between 5 to 10 years until you think you will use make your first home deposit then you will want to be in a growth fund as this gives you the biggest opportunity for your savings to increase.
But if you are only a few years away from using your KiwiSaver for your First Home then you will want to be looking at a more conservative fund.
This is because a conservative fund is less exposed to the ups and downs of the market, and so less likely to decrease in value. Someone with the bulk of their house deposit already saved should prioritize protecting their savings from market volatility. If you have $50,000 in your KiwiSaver and you need to use all of it for a first home deposit, then it is more important to make sure that investment does not reduce in size.
For more information on what fund type you should be in read more HERE.
3. Am I eligible for a First Home Grant?
IF you have been contributing to KiwiSaver for three years you may be eligible for a First Home Grant of between $3,000 and $10,000. This is separate to KiwiSaver and is applied for through Kainga Ora. The amount varies depending upon the region you are purchasing in, your income, and if you buy an existing property or a new build.
To obtain accurate and up-to-date information on eligibility requirements, property price caps, income and asset thresholds, it is recommended to reach out to Kainga Ora.
4. How much can you withdraw from your KiwiSaver?
You will be able to withdraw all of your funds in your KiwiSaver account except for $1,000 which must remain invested, and any amount transferred to Kiwisaver from an Australian complying Superannuation Scheme.
5. Making a KiwiSaver withdrawal for your First Home
This final hurdle to turning your KiwiSaver into a first home deposit. Often the first step is talking to your property lawyer to help you through this process, so make sure you get legal advice to help you make this purchase.
Firstly, you will need to log into the kōura Wealth portal and check your KiwiSaver balance and work out how much you want to take out.
Contact us on [email protected] to advise you want to withdraw funds for your First Home and we will provide you with an Eligibility Letter and our First Home Withdrawal Form. Remember that you will need to leave a minimum of $1,000 in your KiwiSaver account, and any amount transferred from an Australian complying Superannuation Fund.
- A withdrawal takes time: A KiwiSaver fund is not a bank account, it is a portfolio of investments in stocks, bonds, and other assets. Because of this it takes time to sell those assets and turn them into cash for your first home deposit. At kōura we aim to get you your first home deposit within 10 working days of receiving all the required documentation.
6. Getting back on track
Once you have withdrawn from your KiwiSaver and gotten the keys to your first home, you should take a moment to congratulate yourself. Years of hard work and saving have helped you get your first home! Congrats!
But while many people think of KiwiSaver as a savings vehicle to achieve their first home, it is important review your KiwiSaver for your next goal of retirement.
The benefits of continuing to invest in KiwiSaver for retirement:
- Annual Government contributions: Every year that you put money into your KiwiSaver, between age 18 and 65, you can get up to extra $521.43 from the Government, right in your account (if you have invested $1,042.86 during the eligible year). For example, if from the age of 23 you maximise the Government contribution every year, the Government will have invested $21,900 into your KiwSaver by age 65.
- You have time to ride out the storm: Having a longer investment horizon is a great thing, because it gives you the freedom to use investment risk to your advantage. The long-term gains are likely to offset the short-term costs.
- Steady contribution amounts may get you far: With KiwiSaver, you earn returns on the returns you earn. That’s what we call the ‘magic’ of compounding returns. The more your money stays invested, the harder it works for you and grows.
Reviewing your KiwiSaver fund and your contribution rate after a first home withdrawal are just two ways you can get on track for a healthy retirement.
Time is your number-one ally, so make the most of this advantage.
Use our digital advice tool to run your numbers in a few minutes, or call the team at kōura on 0800 527 547.