Shelley Hanna: Rules change helps pair

Shelley Hanna answers your Kiwisaver questions.

Q I read your recent column about using KiwiSaver to buy a home. My wife and I would like to apply for the First Home Deposit Subsidy, as we have been contributing to KiwiSaver since 2007. I have read that the income limit has been increased to $120,000 for a couple, so I am hoping that we will qualify. Does it include overtime? Our gross income is around $110,000 but there are times when I get overtime, and that could push us over the limit. How is eligibility assessed?

A The Government has made some changes to the First Home Deposit Subsidy, including adjusting the income limits. These adjustments have been welcomed by first-home buyers who previously did not qualify.

The income limit for two people has been raised from $100,000 to $120,000 but the income limit of $140,000 for three or more people has been scrapped; $120,000 is now the maximum household income limit. The income limit for a single person buying a house has been lowered from $100,000 to $80,000. The new criteria come into effect from October 1, 2013.

Someone who meets the eligibility criteria can get $1000 for every year they have been contributing to KiwiSaver, up to a maximum of $5000. A qualifying couple will receive $5000 each. This money does not have to be repaid, as long as you live in the house for at least six months.

Sound too good to be true? Not at all - for those that qualify, it is a very good deal indeed. Anyone buying their first home who has been contributing at least the minimum amount to KiwiSaver for at least three years, and whose income is within the specified limits, can apply.

There is also a "second chance" option for KiwiSaver members who have owned a house before, but are in a similar financial position to someone who has never owned a house.

There is a price cap on the house you can buy - in Hawke's Bay it remains unchanged at $300,000 while Auckland has been increased to $485,000 from October 1.

A new minimum 10 per cent deposit has also been introduced - this can include KiwiSaver withdrawals and the First Home Deposit subsidy.

The changes will be incorporated on the Housing New Zealand website where you will also find the application form for the First Home Deposit Subsidy. This runs to 12 pages and requires supporting documentation including evidence of your income and KiwiSaver contributions.

You can apply for pre-approval which will give you confidence that you do in fact qualify. Note that the pre-approval is valid for 180 days, after which time if you have not yet found a house you will have to re-apply.

There are likely to be a number of people in your situation with a fluctuating income. I asked Housing New Zealand how your application would be assessed. Matthew Smith, Senior Manager Financial Products, replied:

"From October 1 a couple purchasing a home together need to have earned a combined income of $120,000 (before tax) or less in the last 12 months.

"The income cap is based on what they have earned in the previous 12 months, and that would include any additional income such as overtime, allowances, bonuses or other income of any kind.

"To check their incomes earned in the last 12 months, they should go to www.ird.govt.nz and run the relevant online reports."

So your income is mostly assessed in hindsight - this should help you to work out whether or not you will be eligible. You should allow plenty of time, and involve both your lawyer and your bank in the process.

Like the KiwiSaver withdrawal, the Subsidy is paid directly to your lawyer's trust account in time for settlement, and cannot be used before this time for any deposit payment.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send your KiwiSaver questions to shelley.hanna@peak.net.nz.