KiwiSaver for the first home buyer
Introduction to KiwiSaver
KiwiSaver is a government initiative that provides New Zealanders with an avenue to save for retirement and help them to purchase their first home. KiwiSaver is a voluntary service that employees have the opportunity to opt in to (with automatic enrolment for new employees) and it then acts as a long-term savings scheme. Contributions are made by the employee (either 3%, 4% or 8% of their gross wages) and this is topped up by their employers who are required to contribute at least 2% of the gross wages of that employee.
KiwiSaver gives contributors two options for buying their first home – a first-home withdrawal and HomeStart grants. These options are both weighted with conditions that need to be satisfied before a contributor can benefit from the scheme.
KiwiSaver first-home withdrawal
The KiwiSaver scheme allows for contributors to withdraw money from the scheme to help towards purchasing their first home. In order to take advantage of this, a contributor must have been making contributions to the scheme for three (3) years.
There is evidence of some confusion around what can be withdrawn by the first home buyer, as it would appear many believe the entire amount in their KiwiSaver can be withdrawn for their first home. However, it is only the first home buyer’s contributions to the scheme that can be withdrawn and only if there is a remaining balance in the scheme of at least $1,000 after the withdrawal.
The first-home withdrawal must only be used for a property in which the applicant intends to live in and the withdrawal cannot be used for investment property.
Applications for first-home withdrawals will be handled by your KiwiSaver scheme provider. In order to make the withdrawal, you will need to:
- Provide your scheme provider with the necessary evidence;
- Meet with your lawyer to make a statutory declaration; and
- Send the application off.
Your lawyer will able to assist you with this process.
KiwiSaver HomeStart grants
The Kiwisaver HomeStart grants require the applicant/s to meet certain criteria before any grant is allocated. Factors that are taken into account include: whether the applicant is a first home buyer; the income of the applicant; the house price; and the area of the house.
As of 1 August 2016, changes have been made to the HomeStart grants. House price caps were increased by $50,000. The new house price caps are as follows:
- On existing/older properties - $600,000; and
- New build properties - $650,000.
Hamilton City, Tauranga City, Western Bay of Plenty District, Kapiti Coast District, Porirua City, Upper Hut City, Hutt City, Wellington City, Tasman District, Nelson City, Waimakariri District, Christchurch City, Selwyn District and Queenstown Lakes District:
- On existing/older properties - $500,000; and
- New build properties - $550,000.
The rest of New Zealand:
- On existing/older properties - $400,000; and
- New build properties - $450,000
Eligibility is also dependent on an income cap. If there is one buyer, the income of that buyer must be below $85,000 before tax in the 12 month period prior to the application. For two or more buyers, this cap sits at $130,000 of combined income before tax for the 12 month period prior to the application. These amounts have increased by $5,000 and $10,000 respectively.
After making contributions to the scheme for three continuous years, contributors are entitled to apply for a HomeStart grant. For those who are purchasing an existing home, the grant will equate to $1,000 per year of contribution (with a ceiling of $5,000). However, for those who are buying a new home or land to build a new home, the grant allows $2,000 per year of contribution and has a maximum grant of $10,000.
Applications for the HomeStart grant will be processed by Housing New Zealand.
How it all works
Applications for the first-home withdrawal and HomeStart grant will need to be made to the relevant KiwiSaver scheme provider. Bear in mind that it can take some time for these applications to be assessed. If your application is accepted, the money does not pass through your hands - the funds will be paid directly to your solicitor in order for the solicitor to allocate the funds on settlement day.
Hayley is a Solicitor in our Asset Planning Team and can be contacted on 07 958 7472.
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