Mary Holm: Home affordability on the rise

The KiwiSaver first-home subsidy is at least a move in the right direction to help folk buy their homes, but I still believe the prices of homes as they remain are still out of reach for many thousands of Kiwis.

Let's face it - how many folk can really buy a home for $500,000 mortgage-free? Or not put themselves into huge hock to buy. And I am not talking rich foreigners here - presuming there are some left.

I don't own a home, though I did. A while back, I could have bought one with a 100 per cent mortgage, as I am sure many did. But I would have had to maintain it and, as my health went down, I would have struggled with the high payments.

I wonder how many others have been, or are, in the same boat.

The wonder is ... prices still remain high in spite of the huge downturn spawned by America.

Once, not really that long ago, I could have bought a home for under $200,000, and it was not a dump. Food for thought perhaps.

What's wrong with a first-home buyer purchasing "a dump"? That's the way it's meant to work, isn't it? You buy a small, shabby house in an unstylish neighbourhood, or perhaps one of those tiny inner-city units, and throw a bit of paint at it. Some years later, you trade up to something better.

Admittedly, a couple of years ago even dumps were going for pretty high prices. But - despite recent news that some mortgage rates have risen - the numbers are generally looking better.

Interest.co.nz editor Bernard Hickey, who monitors house prices, mortgage rates, income trends and so on, said recently: "Affordability for most home buyers has improved dramatically and will continue to get better through the rest of 2009 as house prices ease and take-home pay improves."

He did add, though: "The only complication for first-home buyers is the increasing requirement by banks for a deposit of 20 per cent or more."

That's where the KiwiSaver subsidy, of up to $10,000 for a couple, comes in. And, by the way, it might apply to you. The Government has said that people who no longer own a home, but are in "much the same financial circumstances as first-home buyers", may be able to get the subsidy.

Look for more info on that on www.hnzc.co.nz later this year.

I have been voluntarily contributing to KiwiSaver at the rate of $20 a week since mid-May 2008, just after I turned 18.

I have concerns about whether or not I would be eligible for the first-home deposit subsidy - which as far as I know states you must have been contributing 4 per cent of your income for three years.

During this time I received a student loan and was studying full-time without work.

I have recently started to receive the student allowance (at $193.46 a week with the accommodation supplement), which now counts as my income, so I'm contributing 4 per cent of that.

What I am worried about is whether or not my contributions from May 2008 until the time I started to receive the allowance would count towards the 4 per cent contribution to KiwiSaver.

That is, if I were to have no income, and contribute voluntarily for three years at $20 a week, would this satisfy the requirements for the home deposit subsidy? If you could clarify this it would be much appreciated.

Good on you for planning towards buying a house so young. And it looks as if you're on target to get the KiwiSaver first-home subsidy.

The Government announced a couple of weeks ago that employees must save 2 per cent of their pay - down from the previous 4 per cent - to qualify for the subsidy.

If you save at least 2 per cent for three years, you get $3000 towards your first home. That rises gradually to $5000 after five or more years.

Because a student allowance is taxable income, it's treated similarly to wages in this situation. That means you could reduce your contributions now to 2 per cent of your allowance if you wish.

Housing Minister Phil Heatley said then that "the same principle will apply" for non-employees, but details weren't available. He has now given more specific information about the requirements for non-employees, as follows:

The self-employed will need to save 2 per cent of their gross (before tax) taxable income in the year prior to the financial year in which the contributions are made. In other words, look at last year's tax return.

Beneficiaries will need to save 2 per cent of their gross benefit.

Other non-earners - who would include non-working students, caregivers and others - will need to save 2 per cent of the minimum annual wage, which amounts to $520 a year or $10 a week.

People in all three groups can contribute either regularly, once a year, or in any other pattern - just as long as they get the required amount into their account each year, says a Housing New Zealand official.

It's great to have that spelled out at last. And you read it first here!

But under the previous rules non-employees had to save "around 4 per cent" of their gross pay. What if somebody's saving, up until now, has been high enough to meet the new rules, but not the old rules? Will that period of saving count towards their three to five years for getting the subsidy?

"That's a good question," says the official. "We're going to get back to the ministers (of housing and finance) on this." I'll put new developments in this column. That's not a concern for you. Your $20 a week before you got the student allowance easily covers you.

I was reading your comment that periods of non-contribution to KiwiSaver would delay access to the first-home purchase withdrawal entitlement.

How is this affected by periods of unemployment or periods out of the country? Are people in these situations best to keep contributing weekly or can they just make a one-off contribution each year?

There are two sets of rules.

One is for withdrawing KiwiSaver money for your first home; the other is for getting the first-home subsidy.

The withdrawal rules are easier, because anyone on any income, buying a house in any price bracket, can qualify. They can withdraw their own KiwiSaver contributions plus employer contributions and investment returns on all the money, to put into a first home.

The Government's $1000 kick-start and tax credits must stay in their KiwiSaver account.

They have to be in KiwiSaver for three years to do that, but there are no rules about how much or how frequently they must contribute.

For the first-home subsidy, there are income and house price caps that I've gone into in recent columns. And, as the Q&A above says, unemployed people need to save 2 per cent of their before-tax benefit for three to five years.

If you were to stop for a while, that period wouldn't count towards the three to five years, but you could start counting again when you resumed contributing.

As for being out of the country, as long as you are away only temporarily, and your principal place of residence is still New Zealand, you can keep contributing to KiwiSaver at the same rate as if you were here, and you'll still be eligible for the first-home subsidy.

However, if you live overseas, you would no longer be eligible for the subsidy because you have to live in the house for at least six months after you buy it - and it has to be a New Zealand house.

What if you lived overseas but kept contributing to KiwiSaver, and then came back to New Zealand to live? Would those years overseas count towards the three to five years? That's another one the Government hasn't yet decided on.

* Mary Holm is a part-time university lecturer and bestselling author on personal finance. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (pref daytime) phone number. Sorry, but Mary cannot give financial advice.

WIN GUIDE TO KIWISAVER
Mary Holm has written a book, The Complete KiwiSaver, which includes the April 1 changes made to the scheme and guidance on which fund to invest in, which provider to go with and how to switch provider if you find you are not with the best one for you. The publisher, Random House, has given the Herald 10 copies of the book to give away.

To be in the draw to win a copy, please answer the questions in the following survey. Winners will be drawn at random - so simple answers are fine.

Email your numbered answers (no need to write out the questions) to mary@maryholm.com, with "Herald book giveaway" as the subject, by Friday April 17. Or post them to Herald KiwiSaver book giveaway, Business Herald, PO Box 32, Auckland, to be received by April 17. We will publish the winners' names and some findings from the survey in this column on April 25.

1. Which age group are you in: 17 or under, 18-40, 41-64, or 65+?

2. What town or city do you live in or near?

3. Have you bought your first home? Yes or no.

4. Are you in KiwiSaver? Yes or no.

If you answered "No" to 3, please answer questions 5 to 7.

5. Why aren't you in KiwiSaver (One or more reasons, up to 40 words).

6. Is there anything you don't understand about KiwiSaver (up to 40 words).

7. What changes would make you more likely to join (up to 40 words).

If you answered "Yes" to 3, please answer questions 8 to 10.

8. What do you like most about KiwiSaver (up to 40 words).

9. What do you dislike about it? (up to 40 words).

10. What KiwiSaver changes would you like to see (up to 40 words).

Please add your home address so we can post a book to you if you win. We will publish only your town or city.