February 2015 . . .The KiwiSaver savings scheme has two special features which have been assisting first home buyers. These are:
a)KiwiSaver First Home Withdrawal (“KiwiSaver Withdrawal”); and
b)HNZC First Home Deposit Subsidy (“the Subsidy”).
As of 1 April 2015 the Government proposes to change some of the rules applying to these features to encourage the building of new homes and further assist home buyers to generate the equity to enable them to purchase their first home.
The key change proposed will enable larger KiwiSaver Withdrawals by including the member’s tax credits. This means eligible first home buyers will now be able to withdraw all of their KiwiSaver savings except the Government $1000 kick-start. Currently an eligible member can only withdraw their personal and employer contributions.
Asides from a change in name (to “KiwiSaver HomeStart Grant”), the Government’s proposed change means that if you are eligible for the Subsidy and building or buying a ‘new’ home the Subsidy will be doubled. At present (whether purchasing existing or ‘new’) the Subsidy is $3000 for 3 years of contributing (the minimum you can get), $4000 for 4 years and $5000 for 5+ years (the maximum you can get). This change could mean for an eligible couple purchasing a ‘new’ home together a Subsidy of up to $20,000. This amount excludes any eligible KiwiSaver Withdrawal.
Note: It is not clear at the moment what constitutes a ‘new’ home.
Some key things to be aware of….
1.To be eligible for each feature you must:
have been a member of a KiwiSaver scheme for at least 3 years;
have never owned a home before (Note: Previous home owners may in some circumstances be eligible. They first have to prove to HNZC that their financial position is the same as an eligible first home buyer);
purchase the property in your own name(s) -purchasing in the name of a Trust is not permitted;
live in the home for at least 6 months- if you move out within 6 months you will have to pay the subsidy back. Buying an investment property is not permitted.
2. Eligibility for the Subsidy is also subject to:
Income thresholds. 1 buyer = income earned in the last 12 months must be $80,000 or less (before tax)2 buyers (e.g. a couple) = combined income earned in the last 12 months must be $120,000 or less (before tax)
have regularly contributed the minimum amount to your KiwiSaver Scheme;
the property being within the regional house price limits. Otago is currently $300,000, whereas Auckland is $485,000.
you already having 10% of the purchase price of the property. This amount can be made up of your KiwiSaver Withdrawal, the Subsidy, savings in the bank, money already paid to the real estate agent as deposit under the agreement or a cash gift from a family member.
3.Your KiwiSaver Withdrawal or the Subsidy cannot be used to pay the initial deposit under the agreement. Buyers must already have these funds available. Your KiwiSaver Withdrawal funds and the Subsidy is drawn down into your solicitor’s trust account on settlement date- you never see it.
You need to keep this in mind when negotiating the amount of the initial deposit payable under the agreement.
4.There are strict time parameters.
For the Subsidy you will need to submit an application to HNZC at least 4 weeks before the settlement date.
Each KiwiSaver provider has its own minimum time frames in which it must have received your withdrawal applications by to ensure the funds are available on settlement.
The Subsidy or your KiwiSaver Withdrawal will not be paid out after the settlement date. The settlement date in the agreement must cater for these timeframes
5.The funds can only be used as part of the purchase price to complete the purchase. You cannot retain a portion and use it to buy furnishings for your house;
6.You can buy a property with other people who may or may not also qualify for the Subsidy or KiwiSaver Withdrawal.
7.If you are ineligible for the Subsidy you may still be able to use the KiwiSaver Withdrawal feature. You can withdraw all or part of your KiwiSaver. You can receive the Subsidy but elect to keep your KiwiSaver savings intact.
If you wish to take advantage of these features we recommend that before you put an offer in on a property you do you homework. Who is your KiwiSaver provider? Have you been a member for 3 years? How much have you been contributing and how regularly? Do you fit within the income thresholds? What are the regional price limits for the region I am purchasing in?
We deal with these features every day, feel free to contact us should you have any questions or require help with your applications.
The material in this article is provided for general information purposes only and not as legal advice. If you have any questions on the issues covered please contact us.