Mary Holm: Windows still open for house buyers

Some lending is also exempt from the loan-to-value ratio restrictions. This includes mortgages to fund the construction of new homes. Photo / Dean Purcell

Q: I'd like some advice about saving for a home deposit, please. I saved a bit over $30,000 through KiwiSaver, which I intended to use to buy my first home. I wanted to buy a small unit or apartment for under $300,000. Now, of course, that deposit won't be enough, so I have put off looking to buy for a few more years.

But I'm worried that the rules will change and I won't be able to access that money when I need to.

I'm also worried I could become ineligible - for instance, I'm single and have never bought a house before, but if in future I have a partner who has, would I still be able to remove that money for a house we bought together?

I don't know whether it's better to stick with KiwiSaver for the benefits of the employer contributions, etc, or whether I should stop or reduce contributions and save another way. I do put aside money every week in a savings account, and have saved about $5000, but I'm a better saver if I don't have access to the money. Are there other options I could contribute to regularly that would lock away my money?

A: You may still be able to go ahead with your current plans.

It's true that since last October the Reserve Bank has brought in new restrictions on banks' mortgage lending that may make it hard to get a loan if you have less than a 20 per cent deposit. But still, up to 10 per cent of a bank's new residential mortgage lending can be to people with a smaller deposit. Maybe you could get some of that 10 per cent. It can't hurt to ask your bank.

Adds a Reserve Bank spokesperson, "Some lending is also exempt from the Reserve Bank's loan-to-value ratio restrictions. This includes residential mortgages to fund the construction of new homes, and first home buyers borrowing as part of Housing New Zealand's Welcome Home Loan scheme."

One possibility, then, is having a modest home built for you - although that may be trickier if you're after a unit or apartment.

Another possibility is to get a Welcome Home Loan. These are "offered by lenders, supported by Housing New Zealand and designed for first home buyers who can afford to make regular repayments on a home loan, but have trouble saving for a large deposit," says Housing New Zealand.

As with the KiwiSaver subsidy, you need a 10 per cent deposit, which you have. There are also house price caps and income limits, which are the same as for the KiwiSaver subsidy. For more information, see tinyurl.com/whloan.

If none of those options works, the situation is certainly discouraging. And I don't blame you for worrying about future changes. There can be no guarantees what a future government will do. All we can say is that, in a democracy, the changes aren't likely to be too unreasonable. I'll certainly be yelling with you if they are.

Meanwhile, the news is pretty good on your concerns about teaming up with a partner who has already bought a home.

Housing New Zealand financial operations senior manager Matthew Smith says, "It would be possible for your reader to get the KiwiSaver deposit subsidy, provided their future partner did not own any property at the time of applying for the subsidy and their combined income met the income cap criteria of $120,000 or less in the last 12 months."

He adds, "Under these circumstances it would also be possible for the reader to be eligible for a KiwiSaver savings withdrawal, but they would need to apply through their KiwiSaver scheme provider."

Where does all this leave you on the question of whether to save for your first home inside KiwiSaver or elsewhere?

I suggest you keep contributing enough to KiwiSaver to get the employer contributions and maximum tax credit. Beyond that, though, you might as well make further savings outside KiwiSaver where the money is more accessible, just in case.

To make it hard to get your sticky fingers on the money, every time your savings add up to, say, a few hundred dollars, you could move that money into term deposits. Of course you can still access that money when a term deposit matures, but it might be easier to use self control just every now and then, when you roll over the money into a new term deposit.

You could also ask if your bank has other ways to tie up your savings. Some savings accounts have withdrawal limits or penalties.

$50k best on the mortgage

Q: I've recently sold a house that I built as a spec home. After agent, lawyer fees and a few other bits and bobs, I'll have about $50,000 cash in the bank. Like a flashy ad, it looks great on my computer screen, but after calculating what I have paid in interest and council rates when it was bare land for a few years, then the cost of the finance of the build, I would be lucky to break even and in hindsight, might have been better off just saving.

I am about to turn 40, childless (by choice) with $20,000 in KiwiSaver, earn about $65,000 a year and apart from a $20,000 student loan have no other regular financial responsibilities except for the $300,000 mortgage on the house my partner and I live in.

I had thought about buying a rental property, but with the new Reserve Bank mortgage restrictions I've gone off that idea. So that leaves a bewildering plethora of investment enticements such as sticking it in the bank and offsetting the mortgage (sans interest), term deposits, shares or those PIE thingies.

A: Interesting about the spec house. Many people don't take into account the interest on bare land, rates, etc, when assessing a property investment. Those costs can certainly add up.

But what should you do now with your $50,000? I vote for "sticking it in the bank and offsetting the mortgage". For the benefit of others, this means putting the $50,000 in an account, and that account balance is subtracted from the mortgage balance.

I presume by "sans interest" you mean that the account would pay no interest. But in effect it would. Your mortgage interest payments would be lower. So you can regard the money that otherwise would have been spent on mortgage interest as the return on your $50,000. In fact, it would be a good idea to add that money to your savings.

If your mortgage interest rate is 6 per cent, doing this improves your wealth in the same way as earning 6 per cent - after tax - on the $50,000.

It's quite possible you'd get more in shares, but they're pretty risky, whereas this is like a risk-free investment. It's a great idea.

Total investments

Q: Thanks for your input into the Sorted KiwiSaver fund finder. You asked for feedback on it, so here are two comments about fund finders in general, which also apply to the Sorted one.

First, they assume the fund you are looking at is your only investment. They don't ask what your existing investments are - for example, if you have a lot in property or shares - but perhaps they should. If your existing investments are overly conservative or aggressive, perhaps the fund you pick should lean more in the other direction.

Second, they don't consider how much money you have or can afford to lose. If you had $1 million and you were looking at investing $100,000, you could probably take greater risks than someone who had $200,000 and was looking at investing $100,000. Perhaps there should be a question on a person's current wealth and another on how much they wanted to invest.

I realise fund finders only provide general guidance, not tailor-made recommendations. But there will be lots of people who rely on them instead of using investment advisers, so the better the advice they can give, the better.

A: Fair points, and we did consider both of them when designing the "Find the right type of fund for you" section of the fund finder.

But we decided in the end to go with just three questions in our quiz:

• How long before you expect to start spending your KiwiSaver money - for a first home or in retirement?

• What's most important to you while you're saving? (The options are: getting back at least as much money as I put in; almost certainly ending up with more than I put in, despite some ups and downs along the way; or likely higher returns over the long term, even if that means big ups and downs in some years.)

• What range of gains and losses are you comfortable with over a single year?

There were two reasons for asking only three questions. One is that, if you don't keep things simple, many people give up. There has to be a compromise between what's best in theory and what will appeal to people.

Also, if you take too many factors into account in quizzes like this, it gets really tricky weighting people's answers to the different questions. You can end up with bizarrely wrong answers for some people.

So, to deal with your first point, we included a note at the bottom of the quiz: "Important (in large letters): If you have significant other investments in addition to KiwiSaver, you should take those into account. For example, if you have lots of low-risk bank term deposits, you may want a higher-risk KiwiSaver fund. If you need advice, you may want to seek help from an authorised financial adviser."

It seems you didn't see it. I hope others do.

Your second point is more or less covered in the second and third questions. In answering those, I would think a person would consider their total wealth.

Thanks for a thoughtful contribution.

Cheap family travel

Q: I read last week's letter re "Making memories is important too". Our family of two are now grown up, but love their memories of travelling in our motorhome.

Suggest they rent a campervan first to see how they like it - off season you can get some good deals. And join the motor caravan association, and meet other people who are doing this and see the many different layouts there are.

We managed although putting a lot away for "our retirement".

Next year we are planning to spend several months overseas - probably house swap or similar to make our money go further.

A: Thanks for some good ideas for inexpensive family travel.

• Mary Holm is a freelance journalist, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's 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 (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.