Question:

My 20-year-old son has an $80,000 student loan and is currently earning $28,000. He isn't enrolled in KiwiSaver yet and I have great concerns about him being able to afford a home.

Should he enrol in KiwiSaver with a view to utilising the first home provision, and if so what are the parameters?

Answer:

I started to write "Yes, he should" and then I suddenly thought that I - and, dare I say it, perhaps also you - probably shouldn't be telling a 20-year-old what to do. Let's try again. I suggest that your son joins KiwiSaver, which for most people is the best place to save for a first home.

And this past week it got even better, with a loosening of the rules. More on that in a minute.

There are two aspects to KiwiSaver assistance for first home buyers.

The first applies if you have been in the scheme for three years or more, regardless of your income, how much you contribute, or the price of the home.

You can withdraw - and put into the house deposit - your own contributions, employer contributions, and interest and other returns earned on all the money in the account.

The rest of the money - the $1000 kick-start and tax credits - remains there, usually until you reach NZ Super age. And you can, of course, add more to it.

The second aspect is a government subsidy - basically a gift to you - as part of your home deposit. The subsidy starts at $3000 after three years of contributing to KiwiSaver (or $6000 if you and your partner are both eligible), rising gradually to $5000 after five years (or $10,000 for a couple).

To be eligible for the subsidy:

You must have been contributing to KiwiSaver for a total of at least three years.

Under the old rules, you had to contribute 4 per cent of your income if you are an employee, and "about 4 per cent" if you are a non-employee - including the self-employed, beneficiaries and others not in the workforce.

But last Tuesday Housing Minister Phil Heatley said the Government will drop that to 2 per cent for employees from April 1 - in line with the drop in the minimum KiwiSaver contribution for all employees, not just those wanting the first home subsidy.

That makes it affordable for pretty much everyone. For your son, 2 per cent of pay is less than $11 a week.

Heatley added that "the same principle will apply" for non-employees. "We're lowering the bar for them as well." More detail about that will be announced before April 1, he said.

If you want to take contributions holidays while you are saving for your first home - or to simply not contribute if you are not an employee - that's okay. But those non-contribution periods won't count towards the three to five years.

Whether people under 18 are eligible - and if so what their contribution requirements will be - is expected to be announced some time this year.

The Government originally said that the total income of one or two home buyers had to be less than $100,000 a year (or $140,000 for three or more buyers). It now says the income cap will be reviewed, probably in late June.

You must buy a lower-priced home. Originally, the Government said the home had to be priced in the bottom 25 per cent of prices in your region. However, the price cut-off is now also subject to review - again probably by the end of June.

You don't have to withdraw money from your KiwiSaver account in order to get the subsidy. The two parts are quite separate.

To get the subsidy or withdrawal, the home has to be your main residence, not a bach or rental property. And you must be intending to live in it for at least the next six months.

By the way, your son shouldn't let his admittedly large student loan stop him from joining KiwiSaver. The incentives of the scheme make it a much better proposition, financially, than repaying the student loan faster than necessary.

His priorities should be:

First, get into KiwiSaver and contribute 2 per cent of pay, to get the first home subsidy.

Second, boost his contributions to $20 a week or $87 a month, if possible, so he can get the maximum $1043 a year tax credit.

If and when he can afford to, he might want to pay extra off his student loan as well as contributing to KiwiSaver. But higher priorities should be repaying any credit card or similar loans and - once he gets his house - his mortgage. That's because he has to pay interest on all these other loans, but not on the student loan.

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.