Mary Holm: No rush to claim home subsidy

I would like to know, if you wait until year 10 (rather than three or five years) in KiwiSaver in order to use the first-home deposit withdrawal, can you take out all that you've put into KiwiSaver for
those 10 years?

I assume I would still get the $5000 government deposit assistance at the 10-year mark also?

Yes and yes. There's no rush. What's more, you can take out more than your own contributions, making KiwiSaver clearly the best way to save for a first home.

The only thing to watch out for is the maximum income for the subsidy. If your income is approaching the maximum - which the government may adjust over time - you might want to act before you become ineligible.

For the benefit of others, let's outline the KiwiSaver first-home withdrawal and subsidy.

The withdrawal applies to anyone on any income who has been in KiwiSaver for at least three years. They can take out their contributions, employer contributions and all returns in the account to put towards the purchase of their home. KiwiSaver providers administer the withdrawal.

For the subsidy, the rules are tighter. You have to contribute to KiwiSaver for at least three years, at the following minimum levels:

* From the start of KiwiSaver, in July 2007, to March 31, 2009, you had to put in 4 per cent of your income if you are a fulltime or part-time employee, and "about 4 per cent" if you are a non-employee - including the self-employed, beneficiaries and others not in the workforce.

* Since April 2009, employees, beneficiaries and the self-employed have had to contribute at least 2 per cent of their income. Others have had to contribute at least 2 per cent of the minimum wage.

The subsidy is $3000 after three years rising to $5000 after five years or more - or double that for a couple if both people are eligible.

To get the subsidy, a single person or couple must have household income of less than $100,000. And they must buy a cheapish house. The price caps are currently $400,000 in Auckland City, North Shore City, Rodney District, Wellington City and Queenstown Lakes District, and $300,000 elsewhere.

Both the withdrawn money and the subsidy are paid directly to the home buyer's solicitor on settlement day. The solicitor then passes the money to the seller.

Generally, both the withdrawal and subsidy are available only for people buying a first home. However, if a previous home owner who currently doesn't own a home can show Housing New Zealand that they are in the same financial situation as a first-home buyer, they will be eligible. This might apply, for instance, to someone who has been through a marriage break-up or financial difficulties.

As I said above, KiwiSaver is almost certainly unbeatable for first-home savers. In our correspondent's case, let's say you start the 10 years earning $50,000, and your pay rises by 3.5 per cent a year.

If you saved 2 per cent of your pay outside KiwiSaver, and earned a return of 3.5 per cent a year, you would have about $15,900 after 10 years.

But if you saved the same amount in KiwiSaver at the same return, your account would total about $45,600, according to the Quick KiwiSaver Calculator on www.sorted.org.nz. You would have to leave $11,400 of that - the government's kick-start and tax credits - in the account. But you would still have $34,200 to put into your house - more than twice as much as outside KiwiSaver. And if you qualify for the first-home subsidy, you would get a further $5000.

What's more, you would still have the $11,400 from the government sitting there accumulating for your retirement. Not bad.

I have two questions about withdrawing KiwiSaver savings to buy a first home and the first-home deposit subsidy.

We bought land several years ago and will be starting to build our first home next year - quite small and inexpensive. Our combined income is under $100,000. I will have been paying into KiwiSaver for three years.

My first question is: Will I be eligible if I build (not buy)?

My second question is: To save money and avoid one large mortgage we are going to stage the building process. Stage one will be building the shell of the house, and stage two will be completing the interior.

Will building a home and/or staging the building process make it difficult for me to access my KiwiSaver savings and get the first home subsidy?

Sorry to be the bearer of bad news, but you don't qualify for either type of first-home assistance - the withdrawal or the subsidy - because of timing.

You can get KiwiSaver first-home assistance either:

* When you buy an already-built first home.

* When you buy land on which to build a first home. You then have to build within 12 months, and send Housing NZ a code compliance certificate. If you don't do that, Housing NZ can ask for the subsidy back.

Unfortunately, you've already bought your land.

It's remotely possible you could qualify as being in the same financial situation as a first-home buyer. But to do that, you would have to have "realisable" assets totalling less than 20 per cent of the house price cap in your region. The realisable value of an asset is the amount you can sell it for. Your land is almost certainly worth more than $60,000 or $80,000 - before we even look at savings and so on.

I bought a rental property four years ago through an LAQC. My trust then bought my own residential home 18 months ago. These are the only two properties I have ever had a connection with.

I have been contributing to KiwiSaver for nine months.

Given that I haven't bought a house in my own name, am I entitled to all the benefits available to first-home buyers if I were to purchase one in my own name?

Something tells me that you are not quite the person the government had in mind for the KiwiSaver first-home assistance. But do you qualify anyway?

First, as stated above, you need to have been in KiwiSaver for at least three years before you can withdraw money to buy your first home. And for the subsidy, you need to meet the requirements for contribution level, income and house price.

Assuming that in a couple of years' time you do qualify in all of those ways, where do you stand?

Conversations with Housing NZ and a provider reveal that this is a bit of a grey area.

Let's start with the LAQC, or loss attributing qualifying company. "Ownership of shares in a company that owns land will not affect an individual's eligibility for the deposit subsidy," says Housing NZ. Sounds promising.

The provider goes along with this to some extent. If you owned shares in, say, Kiwi Income Property Trust, that wouldn't affect a withdrawal from KiwiSaver for a first home.

"But in my opinion LAQCs would always be caught," he says. "I can't see that he could argue that he hasn't owned an estate in land," which is the acid test here.

Hmm. Not so promising after all. Anyway, let's move on and look at the trust.

Says Housing NZ: "The purpose of the subsidy is to help people buy and live in their first home." But you are effectively already doing that, in the house the trust bought for you. So, on those grounds, it's unlikely you would qualify for the subsidy.

In both conversations, however, the experts came up with possible scenarios under which somebody with a trust, or possibly even an LAQC, might still be able to get KiwiSaver first-home assistance. It might depend, for example, on the number of trustees or shareholders, or whether you are the beneficiary of a trust that has been in existence for several generations.

You might also find a more obliging KiwiSaver provider than the one I spoke to. Note, though, that the Government Actuary is keeping an eye on how many early withdrawals providers permit, so you probably won't come across anyone who is extremely lax.

It's worth also keeping the whole thing in perspective. The first-home withdrawal is merely moving your own money from one place to another. If you can't do it, you'll have more money saved for retirement.

And the subsidy is worth a maximum of $5000 per person. Nice - but it sounds as if you can get by without it.

I find it strange how everyone always compares individual incomes to house prices (both now and in the past). Surely, on average, more than one income-earner lives in a house. Therefore, isn't it more appropriate that house prices are compared to household income?

I believe there are more families/households today with two income-earners than say 30 years ago. Therefore, as household incomes would have risen faster than individual incomes, people's ability to buy more expensive property has also risen. This may explain the increase in house prices. I would like to see some research on this.

It is not realistic to compare a single-income family in the 1970s to a double-income family today and expect the second income to have no effect on the price of real estate. Just remember, when you go to the bank to buy a property, the bank looks at total household/family income to determine how much you can be borrowed.

Footnote: Who knows, I might have opened a can of worms and got some real debate going in your column; for example, how advantaged and unfair it is for double-income families to be able to buy more expensive property than single-income families.

I say the more debate the better - but we have to compare apples with apples (that is, household income with house prices). Furthermore, I don't know why this hasn't been thought of before. To me it's a no-brainer.

Good point - which probably goes some way towards explaining why house prices have outgrown individual incomes.

But there's still the issue of rents, which have also risen much more slowly than house prices. How do we explain that away?

* The KiwiSaver Basics page on www.maryholm.com includes the answers to many readers' questions about the scheme.

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 (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.