Hundreds give money back to KiwiSaver after withdrawing funds to buy first home

Data shows that hundreds are having to give their money back to KiwiSaver. Photo / Getty Images

By Susan Edmunds of RNZ

KiwiSaver helps thousands of buyers through the doors of their first homes each month. But data shows that, although the process goes smoothly for most, hundreds are having to give their money back.

Inland Revenue data shows that in September, 108 people returned $4.4 million in funds they had withdrawn from KiwiSaver for a first-home purchase. In the same month, 3430 people withdrew money.

The month before, 131 people returned money.

Key Mortgages mortgage adviser Jeremy Andrews said it was becoming more common.

“The main time we’d see this is when timeframes on purchase agreements are tight.”

He said if buyers were using KiwiSaver for the deposit that was due when a deal went unconditional, it might mean there was more urgency in terms of processing the withdrawal.

“These are typically 10% of the purchase price but can be varied or reduced by mutual agreement before an agreement is signed. KiwiSaver withdrawals from some providers are typically quick but could also take up to 15 days.

“If clients don’t proceed with purchasing a property for any reason such as banks rejecting a property, clients missing out on an auction, or pulling out as part of their due diligence, then their KiwiSaver is typically returned back to the provider. We avoid requesting KiwiSaver withdrawal before clients go unconditional on a purchase where we can, but sometimes clients must start processing their KiwiSaver withdrawals before their finance is approved by the bank.”

People can apply to withdraw their KiwiSaver money when they have a sale and purchase agreement signed on a property.

If their agreement is conditional, the money can be withdrawn for a deposit. If it is unconditional, the money cannot be used for the deposit but can go towards the settlement.

The money is paid by the KiwiSaver provider to the buyer’s lawyer who then pays the deposit on the property or puts it towards the settlement. But if settlement doesn’t happen and that is not because of fault on the purchaser’s part, the money is returned to the lawyer’s account who has to send it back to the KiwiSaver provider.

If the sale does not go ahead, once an agreement has gone unconditional, because of something that the purchaser has done, they can find that they lose the money if they are required to forfeit the deposit or pay to cover the real estate commission.

Rupert Carlyon, founder of KiwiSaver scheme Kōura, said he did not see a lot of it. “The few times it has happened with us is when new builds have not been delivered. They use their KiwiSaver to pay the deposit and then if the house is not delivered they need to return the funds back to their KiwiSaver.”

He said it could become more common if developers were starting to struggle to complete their projects.

Kernel head of customer strategy Catherine Emerson said among its membership, there had been two occasions this year when a withdrawal was returned.

“Usually the solicitor handles all the details, as they are often the primary contact with us when withdrawing for first home purchase, and they don’t want that money just sitting in their holding account.”