KEY POINTS:
Almost everyone south of Auckland City looks likely to be able to use their KiwiSaver savings to buy a first home costing up to about $300,000.
The cap may be lifted to around $400,000 for people buying their first home in Auckland City, Waitakere, North Shore or Rodney, and in three areas south of Auckland - Thames-Coromandel District, Wellington City and Queenstown-Lakes District.
Officials yesterday gave more details of how the enhanced KiwiSaver scheme unveiled in last week's Budget can be used to buy a first home.
First-home buyers who intend to live in the home they are buying will be able to take out everything they and their employers have put into their KiwiSaver account after three years.
The Government will pay them $1000 each for each year of saving up to a maximum of $5000 - $10,000 for a couple if both have been savers.
But they will not be able to use the initial $1000 "kick-start", which the Government will pay into every new KiwiSaver account, or the Government subsidy of 4 per cent of earnings up to $20 a week ($1040 a year). These will stay locked in until age 65 unless people become seriously ill or die.
Income and house price caps will stop big earners getting state subsidies to buy mansions.
The maximum household income at current income levels would be $100,000 for one or two borrowers (likely to be the vast majority), or $140,000 for households of three or more borrowers such as extended families.
The scheme's house price caps are based on lower-quartile house prices - the figure that a quarter of the latest house sales in a district were below.
The national lower-quartile price in the first quarter of this year was $235,000.
The Treasury says that on current house prices, the two caps would be $400,000 and $300,000. Precise figures will be fixed based on house price values in June 2009 and will be reviewed annually.
Quotable Value figures show only North Shore, Rodney, Auckland, Waitakere, Thames-Coromandel, Wellington and Queenstown-Lakes with lower-quartile prices above $300,000.
Soon I am going to be a new mortgage payer, as I am in the process of buying a house. How can KiwiSaver be of advantage to me? KiwiSaver can help you get a deposit for your first home after you have been in the scheme for three years.
After a year in KiwiSaver, you can divert up to half your contributions to repaying the mortgage on the home you live in, provided your KiwiSaver scheme provides for this option.
You will not be able to divert your employer's contributions, the Government's annual subsidy of up to $20 a week or the $1000 Government "kickstart".
This option is also not available for investment properties. By putting $40 a week extra into paying off mortgage principal, I am effectively earning 8 per cent [the mortgage interest rate] untaxed, with compounding reduction on interest paid over the shortening term of the mortgage. What investment vehicles offer such a high after-tax return at such low risk? Why save now while paying rent, only to have to spend those savings paying rent in your retirement? Herald personal finance writer Mary Holm says the Budget has completely changed these calculations because when you pay into KiwiSaver you now get a gift of up to $20 a week from the Government and, if you are an employee, you double your money with your employer's contributions.
"Now they have loaded it up so much that it's never better to pay the mortgage off [instead of joining KiwiSaver]," she says.
It may pay to divert part of your KiwiSaver contributions to paying off the mortgage if you earn more than $500 a week.
The Government subsidy is fixed at a maximum of $20 a week on all income above $500 a week, so if you earn, say, $1000 a week, you can divert half your $40 KiwiSaver contributions to paying off the mortgage without affecting the Government's matching $20 subsidy on the other $20 that you are leaving in the bank.
ASK US
* Do you have a KiwiSaver question? Email newsdesk@nzherald.co.nz
* KiwiSaver special: Herald Money columnist Mary Holm has prepared a three- part guide to KiwiSaver, starting in the Herald on June 6.
ON THE WEB
www.kiwisaver.govt.nz
