KiwiSaver has homebuyers in a muddle

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Understanding how to use the KiwiSaver first-home assistance scheme is proving so difficult that some prospective homeowners are giving up.

Administration of the scheme - which allows home buyers to withdraw most of their funds and apply for a deposit subsidy to help them into their first house - is split between Housing New Zealand and the individual KiwiSaver providers.

Commentators say the lack of one co-ordinating body has led to misinformation, resulting in some homebuyers missing out on the assistance.

The Banking Ombudsman's office has received a series of complaints from would-be buyers who have run foul of the rules. Ombudsman Deborah Battell has called for more clarity from KiwiSaver administrators.

Common misunderstandings include people not realising they cannot apply for the funds after settling on a house, that all the money must go directly to their solicitor on settlement day, and that the income and house price caps apply only to the deposit subsidy part of the scheme, not the funds withdrawal part.

There has even been confusion over the word "deposit". Housing New Zealand told the Banking Ombudsman's office that funds withdrawn from investors' KiwiSaver accounts could not be used for the house deposit, when it emerged what it meant was the money couldn't be used for the deposit given to the real estate agent.

Auckland first-home buyer Kate Rogan thought she and her partner's combined incomes would rule them out of the scheme.

She was surprised to discover that they could still withdraw their KiwiSaver funds even though they didn't qualify for the deposit subsidy.

"Everything is muddled up into one. I don't think people realise that there's more than one thing being offered."

They eventually worked it out and are about to settle on a property they could not have afforded without KiwiSaver.

But "you have to go through this rigmarole, and I'm not a dummy," she said.

Laurie Mellsop, head of group investments at default KiwiSaver provider ASB, said the bank had processed 188 first-home buyer withdrawals since the first customers became eligible on July 1. Inquiries were gradually increasing and most people had a "relatively low level of understanding" of the criteria.

One common area of confusion was how far in advance of settlement a withdrawal application needed to be submitted.

"We recommend that as soon as the customer has started the process of looking to purchase a home they should contact their KiwiSaver provider to fully understand the process their provider has set," he said.

ANZ's wealth general manager funds management, David Boyle, said the bank had processed around 150 applications so far out of 387,000 members. The use of the word "deposit" had caused confusion.

He also advised prospective homeowners to get in contact early. "Talk to your solicitor, your bank and KiwiSaver provider to ensure you know exactly what documentation you need and to make sure it's co-ordinated."

Tracey Berry, head of wealth and private banking at the BNZ, said it was not the KiwiSaver providers that set the rules.

Now that their first members were eligible for the scheme they were having to work out how to implement the legislation.

"There are a lot of moving parts, and where the ownership is of making sure that the individual has the right information at the right time is not immediately clear."

Retirement Commissioner Diana Crossan also said clarification was needed, and believed that responsibility fell on the Inland Revenue Department which set up KiwiSaver.

But IRD said it did not administer either part of the scheme and was not best placed to educate KiwiSavers about the features.

THE RULES

Karena Goodall, from Gareth Morgan KiwiSaver client services, explains the requirements for the KiwiSaver funds withdrawal and first-home deposit subsidy scheme.

Funds withdrawal

You can withdraw some of your KiwiSaver money to help you buy your first home. You must:

* Have been a member of KiwiSaver or a complying superannuation fund for three years;

* Have never bought a property before (although there are exceptions);

* Be buying a property to live in.

* You can't withdraw the government contributions, and the money must be paid directly to your solicitor.

Deposit subsidy

You may also qualify for Housing New Zealand's first-home deposit subsidy of $1000 per year of membership up to a maximum $5000. In addition to the above, you must:

* Have contributed the minimum to KiwiSaver or a complying fund for at least three years (4 per cent until March 2009 and 2 per cent thereafter);

Buy a property worth no more than $400,000 in Auckland, Wellington and Queenstown and $300,000 in other areas;

* Earn no more than $100,000 for one or two buyers and $140,000 for three or more buyers.

You can buy a property with other people who also qualify. The money must be paid to your solicitor. If you have owned a house before you may still qualify, as long as you don't have assets worth more than 20 per cent of the house price cap.