I have just finished my studies and I am now in my first job here in NZ. I have permanent residence and have never owned any property either here or overseas. I am putting 8 per cent into my KiwiSaver and I would like to withdraw all the amount (except $1000 that I have to leave in the account) when I buy my first home. Are there any drawbacks in putting in 8 per cent? And what type of KiwiSaver fund would be most suitable?
Congratulations on planning ahead for your first home purchase. For many people buying a house is the biggest purchase we make in our lives, so it is important to put a lot of thought into it.
Someone who has been a member of KiwiSaver for at least three years, and has never owned property before, can apply to withdraw all but $1000 of their savings to buy their first property. It must be a home they intend to live in, not an investment property.
As your KiwiSaver funds build up, establish a relationship with your bank or a mortgage broker to help you plan your first home purchase. You will also need a solicitor. These people will help you avoid mistakes, such as buying a section before applying to withdraw your KiwiSaver funds (you can't own property when you put in your application - you must apply first).
Once you have saved enough and are ready to buy your first home, your solicitor will help you put together all the documents for your KiwiSaver withdrawal.
Buyers need to give their KiwiSaver provider at least 10 days' notice before the withdrawal is needed.
This is very important, as you can't get your money out of KiwiSaver after the property purchase has settled.
If the withdrawal is approved, the money will be paid directly to your solicitor or conveyancing practitioner.
You may be able to use some of the money to pay a deposit on the house, but do not assume that any KiwiSaver money will be available for this - check with your solicitor.
Your KiwiSaver provider may not release your savings until the settlement date, in which case you either have to find the money for the deposit elsewhere, or you can ask the real estate agent if you can settle in full on settlement day.
Alongside the first home withdrawal you may also qualify for the Home Start grant through Housing New Zealand. Terms and conditions are on the Housing New Zealand website.
The most you can contribute to KiwiSaver directly through your wages is 8 per cent. If your budget allows and you are confident that you will indeed qualify for the first home withdrawal, then it is a good idea to contribute at that level as it puts your savings at arm's length. If you wish to save more then set up a designated bank account.
These more accessible funds can be used for some of the costs of buying a house, such as a builder's report and insurance.
What type of KiwiSaver fund is suitable for you? This depends on your timeframe. Go to the Fundfinder tool on the Sorted website, and answer the three questions under "Find the Right Type of Fund for You".
The critical question is "How long before you expect to start spending your KiwiSaver money?"
If your answer is 0-3 years then you should be in a conservative or defensive fund.
If your answer is 4-10 years then you could start off in a balanced fund and switch to conservative as your timeframe reduces.
- Shelley Hanna is an authorised financial adviser FSP12241. Her free disclosure statement is available on request by calling 06 870 3838 or go to www.peak.net.nz. The information in this article is general and is not personalised. Send your KiwiSaver questions to firstname.lastname@example.org