Mary Holm: First home subsidy takes a twist

I've been in KiwiSaver since the beginning. My fiancee just joined last year after obtaining her residency.

At the moment we don't live together but will do after marriage in December.

Our individual incomes are both below $100,000, but combined they are over $100,000.

Seeing my wife will not be eligible for the subsidy or withdrawal towards the first home, will I be able to get around this by purchasing our first home under my name and my wife pays me rent, which will contribute to the mortgage repayment?

Be interested to hear your views about this.

To my surprise, you probably can do this. Take note, any other couples who thought they earned too much to get the first home subsidy - at least one of you may be able to collect $3000 to $5000.

As long as you buy the house on your own, with the title registered in your name, you should be able to get both the subsidy and withdrawal.

This assumes you have been in KiwiSaver at least three years and you meet the subsidy requirements on level of contributions and the price of the house.

Says Housing New Zealand, which runs the subsidy: "The deposit subsidy is an individual application based on household income. Household income means the people purchasing the house with you - that is, those named on the sale and purchase agreement. If the title is registered in the name of the applicant only, then the income of anyone else who lives in the house is irrelevant."

This applies even to spouses.

Nor does there seem to be anything to stop you and your wife from transferring ownership into both of your names later on - making it a joint family home.

Housing NZ says there are no rules governing this.

A dear relative of mine started KiwiSaver just before he turned 65 when he started a new job.

Two years later he was made redundant. He is now terminally ill and has three to 12 months to live, and is looking to withdraw completely from the scheme and use the funds to help make his last few months enjoyable.

He has not contributed to KiwiSaver since his redundancy. He has been told that it is not guaranteed that he will get the funds his old employer contributed as he was not in the scheme for five years. Is this correct and what are his rights?

No, it's not correct. He can probably withdraw all his KiwiSaver money.

The law says that if a KiwiSaver trustee accepts your relative's application to withdraw because of serious illness - and that shouldn't be a problem - the withdrawal "can be up to the value of the member's accumulation". And the "accumulation" would include all government money and compulsory contributions from his employer.

If his employer happened to contribute more than the compulsory amount - zero until April 2008, then 1 per cent of pay until April 2009 and 2 per cent since then - it's possible he might not be able to withdraw the extra voluntary contributions. That would depend on whether that money was "vested". His former employer should be able to explain that to him.

Let me know if your relative has any difficulty getting all his money - except perhaps voluntary employer contributions. Here's hoping he doesn't have to go to any hassle.

I'm on a contributions holiday on KiwiSaver. I have a big mortgage so I took a holiday after my first year of investing. After a short period of not contributing, I recommenced 2 per cent contributions and luckily so did my employer.

I have now found out, to my surprise, that I am still officially on a contributions holiday and that my employer is under no obligation to contribute during this period. I have now changed employer and I'm hoping that the new employer will also contribute voluntarily.

It seems to me that the law really is an ass in this instance as it is not flexible enough for changing circumstances (my fortunes improved luckily). A five-year contributions holiday where an employer may choose not to match my contributions will make a big difference to my retirement savings.

Do you know if this is already a recognised problem and whether the IRD is actually trying to remedy it? I've also emailed the IRD but I have zero confidence in their call centre doing anything about it.

This week's column should be subtitled "surprises and misinformation about KiwiSaver". The only ass here is whoever informed you. They got it wrong.

"A contributions holiday can't be cancelled once approved," says an Inland Revenue spokeswoman. "However, a member can restart contributions at any time ... The person just has to advise their employer they want to resume having deductions made.

"If they do tell the employer to resume making regular deductions, that in turn triggers the requirement for the compulsory employer contributions to kick back in."

There's nothing voluntary about it. As long as you are having deductions taken from your pay, your employer must contribute.

"In terms of a new employer," says the spokeswoman, "the application for a contributions holiday only applies to the employer named in the application for the contributions holiday. It has nothing to do with a new employer unless the person advises that new employer they are on a contributions holiday." So you should have no problems there.

Note, too, that anyone on a contributions holiday can still contribute lump sums whenever they want to. Also, an employer can continue to contribute even when their employee is not contributing. The whole thing is pretty flexible.

Inland Revenue adds: "As always if any of your readers wants more help regarding this, they can call the KiwiSaver call centre on 0800 549 472."

By the way, you did well to join KiwiSaver and contribute for a year, even though you had a big mortgage. The first year, with the kick-start, is such a good deal that everyone should do whatever it takes to be in.

Even after the first year, contributing to KiwiSaver is almost always better than paying extra off your mortgage. Obviously, though, if you can't make the required mortgage payments, a KiwiSaver contributions holiday makes sense. But it's great that you've been able to start contributing again.

Re your question as to why rents have not grown at the same rate as house prices, my belief is that this is due to many investors being satisfied with low yields due to their receiving large capital gains from the early 1990s to the late 2000s.

Given that these sorts of capital gains are unlikely to be maintained over the next 20 years, it will be interesting to see what adjusts the most to ensure a reasonable return on rental property - rents or prices. I am picking rents. But the days of people being content with 4 to 5 per cent gross yields are coming to an end, especially once interest rates start to rise.

I would like to point out that although house prices have risen considerably, one has to remember that you get a lot more now - significantly larger houses, double internal garages, tiled bathrooms and kitchens, flash appliances, granite benchtops, heated flooring, higher stud height, and insulation - although smaller sections.

I've been investing in rentals since the late 1980s, bought positively geared properties, usually villa conversions, returning around 15 per cent gross. And wonderful inflation reduced my mortgage and increased my rents over time, making the current returns on the original highly geared purchases nothing short of stupendous.

Anyone who buys a rental with all the attendant hassles for anything less than an 8 to 9 per cent yield is a complete fool!

I think we've done this topic to death now, but your point about the changing size and features in homes hadn't really been made. On the other hand, as you say, sections are smaller, which might more than make up for everything else being bigger and grander.

On your comment about inflation, yes it does help those who borrow - just as it can hurt those who save. Given the Government's desire to encourage the latter, it's no wonder it has made controlling inflation a key policy.

I keep hearing references to various investments that apparently I can only access if I have children. Recently it was reported that Kiwibank may be opened up to "mum and dad investors". I am a Kiwibank customer but do not have children.

Can you have a chat with your financial reporter colleagues and find out exactly who and what they are referring to when they use this term?

There may be others who might like to know, as I am sure there are many people who can't have children, don't want to have children, aren't ready to have children yet or maybe are even children themselves.

On the off-chance that's it's just some euphemistic term for people who are not big-time savvy investors, can reporters please find another word or descriptor?

The use of such an antiquated stereotype alienates a huge number of existing investors and does nothing to attract potential investors to the market.

I'm innocent! I've just searched all my columns on my website back to 2004, and the only "mums and dads" are in readers' letters, when I quote other people, or in discussions about parents.

I've always felt the term - recently picked up by some politicians - excludes singles, who are left out too often. You've added others to the list of those on the outer. The irony is that people with money to invest are probably more likely to be those who haven't had kids. For an idea on where the expression comes from, read on.

Love your columns. But for years I have been scratching my head wondering exactly who these "mum and dad" investors are that reporters always talk about? I know plenty of mum and dads in their 30s who are on good wickets but with Auckland houses and families are quite distant from having spare cash to invest.

My suspicion is that these mum and dad investors are in reality the tail end of the baby boomers. So should we not call them ex-mum-and-dad investors?

Hardly. As many an octo or nonagenarian will tell you, once a mum or dad, always a mum or dad - for good and bad. But that's not the point. It seems we need a new expression for smaller, less sophisticated investors. Any ideas, anyone?

Mary Holm is a part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter 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 correspond directly with readers, or give financial advice.