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Does It Makes Sense To Wait To Apply For First Home Deposit Assistance?

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Contributor:
Mary Holm
Mary Holm

Question:

I would like to know, if you wait until year 10 (rather than three or five years) in KiwiSaver in order to use the first-home deposit withdrawal, can you take out all that you've put into KiwiSaver for
those 10 years?
 
I assume I would still get the $5000 government deposit assistance at the 10-year mark also?

Answer:

Mary Holm: Yes and yes. There's no rush. What's more, you can take out more than your own contributions, making KiwiSaver clearly the best way to save for a first home.

The only thing to watch out for is the maximum income for the subsidy. If your income is approaching the maximum - which the government may adjust over time - you might want to act before you become ineligible.

For the benefit of others, let's outline the KiwiSaver first-home withdrawal and subsidy.

The withdrawal applies to anyone on any income who has been in KiwiSaver for at least three years. They can take out their contributions, employer contributions and all returns in the account to put towards the purchase of their home. KiwiSaver providers administer the withdrawal.

For the subsidy, the rules are tighter. You have to contribute to KiwiSaver for at least three years, at the following minimum levels:
 
* From the start of KiwiSaver, in July 2007, to March 31, 2009, you had to put in 4 per cent of your income if you are a fulltime or part-time employee, and "about 4 per cent" if you are a non-employee - including the self-employed, beneficiaries and others not in the workforce.

* Since April 2009, employees, beneficiaries and the self-employed have had to contribute at least 2 per cent of their income. Others have had to contribute at least 2 per cent of the minimum wage.

The subsidy is $3000 after three years rising to $5000 after five years or more - or double that for a couple if both people are eligible.

To get the subsidy, a single person or couple must have household income of less than $100,000. And they must buy a cheapish house. The price caps are currently $400,000 in Auckland City, North Shore City, Rodney District, Wellington City and Queenstown Lakes District, and $300,000 elsewhere.

Both the withdrawn money and the subsidy are paid directly to the home buyer's solicitor on settlement day. The solicitor then passes the money to the seller.

Generally, both the withdrawal and subsidy are available only for people buying a first home. However, if a previous home owner who currently doesn't own a home can show Housing New Zealand that they are in the same financial situation as a first-home buyer, they will be eligible. This might apply, for instance, to someone who has been through a marriage break-up or financial difficulties.

As I said above, KiwiSaver is almost certainly unbeatable for first-home savers. In our correspondent's case, let's say you start the 10 years earning $50,000, and your pay rises by 3.5 per cent a year.

If you saved 2 per cent of your pay outside KiwiSaver, and earned a return of 3.5 per cent a year, you would have about $15,900 after 10 years.

But if you saved the same amount in KiwiSaver at the same return, your account would total about $45,600, according to the Quick KiwiSaver Calculator on www.sorted.org.nz. You would have to leave $11,400 of that - the government's kick-start and tax credits - in the account. But you would still have $34,200 to put into your house - more than twice as much as outside KiwiSaver. And if you qualify for the first-home subsidy, you would get a further $5000.

What's more, you would still have the $11,400 from the government sitting there accumulating for your retirement. Not bad.
 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.    
  

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