Few choose to take mortgage diversion route

Complex sign-up procedures and changes to KiwiSaver have led to little interest in a scheme which allows savings to be diverted into mortgages.

Fewer than 1000 homeowners are thought to have signed up to mortgage diversion, which suffered a difficult birth with a three-month wrangle between the banks and Inland Revenue to allow it to go ahead.

The scheme was to have gone live from July last year, a year after the start of KiwiSaver, but it was delayed until September to work through an unwieldly clause which meant most people with credit cards or a revolving credit mortgage were not eligible.

An agreement was made between Inland Revenue and the Bankers Association to allow most people to sign up but it has failed to attract the numbers and there is talk among providers of asking the Government to abolish it.

Greg McAllister, head of wholesale distribution for ASB Group Investments, said he believed the number of changes made to KiwiSaver had made it difficult for people to focus on more than just signing up.

Changes introduced on April 1 to reduce the minimum contribution to 2 per cent meant only those earning over $104,000 could make the most of mortgage diversion.

"The changes that took effect on April 1 reduced the attractiveness for most members and most were already uninterested at that point in time."

Mr McAllister said ASB had made an investment into the diversion facility but it didn't appear to be popular. He said less than 1 per cent of its 190,000 members had signed up.

"Customers have clearly signalled a low interest."

Of the eight largest KiwiSaver providers half do not offer the option although Tower and Mercer, which partners with Kiwibank, are both considering it.

But ING and ASB, the two largest KiwiSaver providers, say they only have around 300 members each and interest has been low.

Sharon Mackay, senior product manager for BT, Westpac's fund management arm, which has around 30 sign-ups for diversion, believed the uptake was low because it was too complicated.

"There are too many moving parts. You need to make sure both your KiwiSaver and mortgage provider do it. Trying to put it all together seems like a nightmare."

Savers can only go ahead with diversion after being in KiwiSaver for a year which meant for many the sense of urgency had gone and they had got used to contributing 4 per cent of their pay to KiwiSaver, she said.

"It's a very lengthy way to get your money to your mortgage provider."

Asked whether mortgage diversion had a future, Ms Mackay said: "I hope not." The option had been introduced to help people with affordability but that was no longer necessary given people could contribute just 2 per cent under rules introduced from April 1, putting the extra 2 per cent directly into their mortgage.

"It's a great idea but it just doesn't work in principle. It's just not going anywhere."

Andrew Gawith, executive director of Gareth Morgan KiwiSaver, which does not offer mortgage diversion, said it was one area the Government should tidy up. "It has been a complete waste of time. We never liked it although we seriously considered it for a while," he said.

More than a million people have signed up to KiwiSaver since July 2007.