First home buyers become increasingly reliant on using their KiwiSaver to put together a deposit, as the value of first home buyer KiwiSaver withdrawals doubles year-on-year

First home buyers become increasingly reliant on using their KiwiSaver to put together a deposit, as the value of first home buyer KiwiSaver withdrawals doubles year-on-year

The amount of money first home buyers are withdrawing from their KiwiSaver accounts is growing exponentially, as KiwiSaver balances stack up and become an increasingly vital part of buying a home.  

First home buyers withdrew $44 million from their KiwiSaver accounts in March; exactly double the amount that was withdrawn in March 2015, and more than three times the amount that was withdrawn in 2014.

ANZ, New Zealand’s largest KiwiSaver provider which has a market share of 26%, says the number of first home withdrawals from its scheme has increased by 188% over the past three years.

Its KiwiSaver members withdrew $148 million for their first homes in the year to March, up from $62 million in the previous year.

“As KiwiSaver balances grow, more people are taking advantage of the option to withdraw some or all of their money to help buy a new home,” says ANZ’s managing director of retail and business banking and wealth, John Body.

“The average first home withdrawal by our customers last year was $18,361, compared with $10,611 in 2013.”

The Government’s KiwiSaver rules enable people to withdraw their KiwiSaver money to help fund the deposit on their first homes (excluding the Government’s $1000 kickstart and any savings transferred from an Australian super fund).

The Government also offers KiwiSaver HomeStart grants of up to $5000 for those who’d like to buy existing homes, and $10,000 for those who’d like to build their own homes.

Kiwisaver membership

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Body says it's great to see KiwiSaver help first home buyers onto the property ladder, yet people need to ensure they know how the system works, so they can take full advantage of the scheme.  

“For instance you need to have been a member of KiwiSaver for at least three years before you can make a first home withdrawal,” he says.

KiwiSaver members wanting to apply for a HomeStart grant also need to regularly contribute at least 3% of their income to KiwiSaver. 

“But you really make the most of this benefit when you have been contributing for five years because the Government will potentially give you $1000 for each year you have been contributing, up to a maximum of $5000 per person ($10,000 per couple),” says Body. 

“You can double that if you are looking to build your first home (subject to conditions on the purchase price of homes and income of buyers).”

Speaking to Interest.co.nz in March, the Retirement Commissioner Diane Maxwell, encouraged New Zealanders to use their KiwiSaver to help fund their first homes.

She says paying down a mortgage encourages people to put money toward a valuable asset, rather than blowing it on things they don’t need.

She maintains getting on the property ladder is “the single best thing you can do for your retirement”.

Body encourages people to resume contributions to KiwiSaver after making a first home withdrawal: “A first home withdrawal can make a big dent to the total amount of money you have when you retire.

“It makes sense to resume contributions as soon as possible and consider increasing your contribution rate to ensure you catch up and achieve your retirement savings goal.

“This will ensure that saving for a comfortable retirement and owning your own home work hand in hand.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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70 Comments

So the system is working then. It would be a flop if it wasn't growing.

Is it growing or being emptied by house price inflation as it becomes available?

On one forum we're having a discussion about whether the term property ladder should be banned. The retirement commissioner trying to get people to pump their retirement savings into a property bubble is irresponsible. People need to decide if buying is right, and if it is the right time for them.

The free money from the government is good provided property prices are not volatile. A lot of people have been caught by buying a first home and not realising how much equity or savings they'll need to step up to the next home. It's a better idea to get a house that isn't a rotting piece of crap "starter home".

Her KPis are probably based around growth in savings. Considering most Kiwis save in their "house", her "performance" is admirable. I've never once seen her address the issue of risk as it pertains to the wider environment. She's nothing more than a stooge.

Couldn't agree more.

>>> She maintains getting on the property ladder is “the single best thing you can do for your retirement”.

What an irresponsible statement, given the volatility of property, downside risk, hugely higher cost of ownership vis-a-vis renting, and finally the opportunity cost (alternative investments, e.g. even just a middling KiwiSaver fund).

And this is from someone responsible for watching NZ'er's "retirement"?

>>> The free money from the government is good provided property prices are not volatile.

Until you realize that the only thing a $5K Home Start Grant does is make all properties in the criteria $5K more expensive :) as its only effect is to shift the demand curve to the right.

Actually, that $5k is leveraged to make them $25k more unaffordable.

Or to give some boomer $25k more pocket money to play with, depending on your perspective.

"free money from the government"
What on earth are you talking about?

See the above comment.

This shows Kiwisaver is working.
It would be working better if the Government did not allow all the contribution holidays, and followed through on the original intention of increasing % rates of contribution.
It's good to see New Zealanders working from a basis of savings, small as those are.

Kiwisaver isn't great for self employed people. Without an employers contribution it doesn't make a whole lot of sense. Paying my mortgage is a risk free return.

It's a good investment up to the limit to receive the maximum tax credit, but that's all it's worth for the self-employed.

I'm self employed and it's great. I can make a Kiwisaver employer contribution - myself to myself - and thats ok taxwise.
But Dictator, you are too wrapped in the entitlement subsidy way of thinking that plagues New Zealanders. You should be ploughing money in somewhere even if nanny state is not subsidising you. You can do things without the government holding your hand.

You seem to misunderstand what I'm doing. The MTC is the only thing worthwhile, which leaves no other option but investment not bound by kiwisaver rules, especially when $87 per month is all that's needed.

I don't see any entitlement as I will not receive any superannuation by the time I retire. I have no choice but to look after myself.

Yep. I have no idea what you are talking about.

No, it's not working IF it's become nothing more than just another housing subsidy. A far better incentive would of been to just remove the RWT on all savings accounts. Simple and without all the government/IRD bureaucracy nonsense and finance industry fee system people are now forced to be part of.

KS is just another 'benefit' at the expense of living wage increases in my opinion. It does nothing to empower people with their own money, instead it locks them into a system where they lose some control.

I agree with both points you make. I've been a regular contributor to Smartshares since their inception, but never joined KS (I'm based overseas and lead a kind of "non-average" life compared to the stereotypical urban dweller in NZ). That being said, I'm sure that KS has contributed to the NZX50 as funds have to go somewhere.

I agree with both points you make. I've been a regular contributor to Smartshares since their inception, but never joined KS (I'm based overseas and lead a kind of "non-average" life compared to the stereotypical urban dweller in NZ). That being said, I'm sure that KS has contributed to the NZX50 as funds have to go somewhere.

Personally I am disappointed that so many people are using their kiwisaver account funds to put together a deposit for their first homes. I thought this was long term money, money you were building up for retirement. The fact that Y needs to resort to pinching money out of their long term super scheme just shows how poorly paid people are in New Zealand. The boomers and early X were able put together their deposit from personal savings generally as loans were a lot less than 10 times income back in those dim dark days.

Well it depends if the following is true or not:

"She maintains getting on the property ladder is “the single best thing you can do for your retirement”."

Exactly - When I was around 25, thinking houses were too dear and Id never bother etc someone very wise asked me a simple question. "Where will you live when you retire?". When you start thinking this through it really is a no-brainer. Take some pain and buy a house while you're young. This is exactly what Kiwi Saver should be used for. In fact, I think it should be expanded.

What's the guarantee that any of us make it to retirement? Rapidly rising housing costs alone are postponing that for almost everyone entering the workforce

I know I'll make it - I'm planning for it. You can work until you're 80 or 90 if you like.

Yeah, ya better lose some weight first eh. Obesity kills early

Hahaha! Hey, user names aren't what people are or look like. How many Iron mans have you done? Just the 4 for me. :o)

The US retirement savings account is a 401k and that allows for loans. The loan has to be repaid with 4% interest (to compensate yourself for the borrowing). There are some other exceptions for housing in certain circumstances but typically the money taken out is a set back even with the 4% interest. It involves liquidating shares and bonds which quite possibly realises losses. Same with using kiwisaver for a house deposit.

Will people end up worse off? Some will and some won't. It's only an option for a FHB. There's a lot of people that can only save with forced savings so maybe it's a good thing either way for individuals.

What happen to all those 401k's after the 2008 GFC?

Much the same thing that would have happened to any NZ KiwiSaver funds, I expect. With the exception that US 401K contributions are untaxed (until withdrawal), so their balances remain higher and the compounding gives them more of a cushion, whereas in li'l ol' socialist NZ, you will both pay your taxes upfront, lose control of your own funds, AND get screwed by a limited choice of fund providers.

This is pretty accurate. They have an unfortunately high control over their 401k so when the GFC hit there was a lot of panic selling of everything. I knew one person based in the US who was buying up all the cheap shares he could. They have more cushion but they also have a lot of people making bad decisions.

It wouldn't make any difference here, people would just switch from an aggressive fund to cash.

You're most likely right. Most people prefer to buy high and sell low when it comes to investments. Hopefully we can get some statistics about people changing funds inside kiwisaver when there's the next stock market crash.

Kiwisaver is just propping housing prices up .......every bit of interfering by the politicians creates further distortions....personally I have no problem with people using their kiwisaver as it is senseless to be saving for an event which could be well over 4o years away and yet people can't meet their immediate needs of a house......

Personally I dislike kiwisaver.

See my comment above Gordon. You are right. KS has become a housing subsidy and a bloody ridiculously complex one that was never going to be the answer to anything IF we aren't going to address the cost of an essential item we all need. A home.

>>> Personally I am disappointed that so many people are using their kiwisaver account funds to put together a deposit for their first homes.

It's not plausibly useful for anything much other than extracting the $5K grant out of. In terms of retirement savings the funds are of limited choice, cannot be diversified (multiple funds or globally), and are expensive in terms of fees.

Even the 'employer contributions' is a scam; obviously it just ends up lowering nominal wages to compensate, as employers' labor budgets are what they are irrespective of government mandates, so again you are left with the illusion of assistance and are merely losing control of a % of your own money.

Meanwhile, this is what our illustrious political leaders have at the back of their minds for when they have total control of all your $ and you can no longer squeal about it - suck it up comrade:

The second option, which had “significant advantages in terms of simplicity and fairness”, would be to raise the age of NZ Super eligibility to 67 and put a “withdrawal” tax of 10% or 15% on KiwiSaver that would apply at maturity or when people permanently emigrated.
-- Michael Cullen 2012, http://www.goodreturns.co.nz/article/976500340/cullen-calls-for-major-ki...

Re property subsidies -
But it's only a subsidy with the lower end of the housing market. Most Auckland properties are actually now above its $550K limit for the time being so it's unhelpful for Auckland FHBs.

I don't think people realise how much the rules with change compared with today. The employer contributions do have a positive impact on share prices though.

Wonder when they will eliminate the MTC entirely. Wonder when they will kill the $1K kickstart and screw all younger investors (oh wait-). Wonder when they will force an ever higher % of earnings into it and out of the earner's control. Wonder if a future govt will remove the homestart grant without warning just before I want to buy a house. Wonder what the "rules" will be in 35 yrs when I retire. Wonder what the tax-in-tax-out haircut rate will be. Wonder how much they will have raised the withdrawal eligibility age.

Work harder little comrades.

I'm with Superlife and can choose my allocation between different funds, most is just lumped in overseas shares but there's a fair list of options. I think you're right that there's no way to diversify between providers though, so there's a risk there. That and the extortionate fees for all aggressive kiwisavers mean I'll only put in the minimum needed to get the full employer matching + tax credit, and anything else gets invested outside kiwisaver. Hopefully the fees will start to drop as fund balances increase.

This piece reminds me that the current government has once again shafted the very people who voted for it (and according to the polls will continue to vote for it - go figure). They removed the kick-start and started taxing employer contributions. On top of screwing low income earners by raising GST etc. etc.

Enough ranting time for some Zs...

I think critical thinking skills are few and far between with most of the voting population. Go figure.

However, critical thinking skills aren't much use when all the voting alternatives are degrees of rubbish

Never bothered with Kiwi saver, worked out that at my age I was better off putting an extra $50 a week on the Mortgage. If your a 20 something and got in with Kiwisaver at the start I would also be pulling my money out now if buying a house was an option. Personally I don't trust the scheme long term. $50 extra was also saving me $50 in interest so I pay half and the bank pays me half and that is a guaranteed return.

neither did i, i bought 3 rental properties at the same time my friends joined kiwisaver when it started. everyone at the time said i was mad and was regularly the butt of jokes about fixing toilets and bad tenants, funny how time passes and those same people now say I'm lucky and wished they'd done the same. Needless to say the amount of money I've made from rental properties buying selling and the ones I've paid off and are keeping over the last 20yrs they will never save in kiwisaver in their working lifetimes collectively...kiwisaver is just a scam to move retirement from the Gov to the individual and businesses then remove the pension. I laugh how they keep referring to it as your "investment" because theres no investing only saving and we all know savers are being smoked from low interest rates and inflation. And just on another note have you noticed the Bruce Allpress ad getting everyone ready for their kiwisaver not to be enough...

I agree. KiwiSaver is not enough.

Carlos you are wrong. The earlier you start saving for retirement the better off you will be long term and you will have the option to retire early if you want to. I asked my broker recently what kind of return they are getting for clients in managed funds. His response was that they had averaged 12% for some years. That kind of return beats paying off your loan where your interest rate is 4%.

People do miss the concept of compounding gains over time. The best time to invest is when you are young as you get more years to compound.

I should have invested more when I was younger but I put my money into starting a business then buying a house. Overall my position is a lot better as my savings rate is really high. I know a lot of people worse off than me in Gen X and so on with no capacity to save.

Carlos is not wrong, and what you say has it's merits. But you must remember to also factor in what happens when the mortgage is paid. i.e. you save hundreds of dollars a week in living costs.

The whole point of saving for retirement is to cover your needs and some wants. Covering off a vital need (shelter) now, will pay far better dividends in the long run.

Very few investments will have that sort of return consistently e.g. $500 a week in savings for as long as you live there (no mortgage or rent) You are therefore lowering the amount you require when retired significantly. At $500 a week that is $26,000 a year, across a 10-15 year retirement that is almost $400k. Most people will be lucky to have that saved even with Kiwisaver.

Now imagine you have paid off your mortgage a bit earlier and have that extra $500 to invest each and every week. Compounding interest/gains are great, but 5% gain of $100 across 50 years doesn't beat 5% gain on $500 in 20 years.

Noncents - but the challenge a lot of people will now face is ever being able to pay off the mortgage they have before retirement because of the huge amount they are having to borrow to get into the housing market. If interest rates are higher than they are now for 20-25 years of the 30 year term they have to pay off the debt (which could well be true if you look at historical averages), then a lot will be in real trouble - especially if wage inflation remains relatively low. From that respect, and like your user name suggests, it's 'Noncents'.

I agree entirely. Which is why it is even more important to pay off the mortgage first if you can.Last thing you want is to retire with $500k in super but owe $750k in mortgage. After all compounding interest works for loans as well.

However the reality is that many people simply can't afford a mortgage to get a house.
That is the actual problem house prices may be ridiculous but look at the mortgage. With a 30 year mortgage at 3% you are paying roughly twice the purchase price over the life of the mortgage.

Financially speaking a lot of people would be better renting for life - as a society we have to determine if we are happy with that. If not then we needed to make some big changes a while ago. To change things now require some massive changes.

>>> Very few investments will have that sort of return consistently e.g. $500 a week in savings for as long as you live there (no mortgage or rent)

You appear to be unfamiliar with the concept of opportunity cost.

Not at all. I understand them perfectly. Do you? Comparing opportunity costs of potential investments is hazardous at best. No one can accurately predict how they will turn out.

Lets look at a simple example though to establish a base investment.

Say you earn $900 a week
You have $300 mortgage/rent for 30 years
$300 food and other expenses
= $300 to invest
You do this over 30 years (Term of Mortgage)
You have 30 years of $300 a week invested($468,000) plus the value of your house.

I earn $900 a week
I have $600 mortgage for ten years
$300 food and other expenses
= $0 to invest for ten years, but
= $600 to invest for twenty years

After the same 30 years I have invested ($624,000) plus the value of my house.

How will those two investments compare - who knows? So all you can do is compare risk.
- Sharemarket collapses in year 9 - you have lost everything I have lost nothing.
- Maybe it crashes in year 29 in which case we both lose everything.
Either way you are exposed to the higher risk of the sharemarket over a much longer period than me.

Even if it does crash (after 10 years) I have the ability to invest more so have a better chance of recovering.

I know what position I want to be in.

Noncents you are talking nonsense again and exaggerating wildly. Share markets do not collapse completely. Even in 1987 they didn't. If I had followed your advice I would not have retired as young as I did. Housing markets can equally fall back but never totally of course. That is why NZ is such a poor country overall. So many people hark back to 1987 and have missed out on wonderful opportunities to grow a retirement fund from company dividends. The pullback in equity markets as a result of the gfc was short lived and now we are at record highs in the world of equities. It would be even higher if oil was stronger in price. People like you really show your ignorance when you talk about shares and in doing so you scare so many people away from opportunities to grow one's nest egg.

in fact many of us took the opportuntiy in 2009 to buy up under valued stocks and reap the rewards pity the government in charge stopped funding the cullen fund at the same time, it would be twice the size today

If everyone owned their own place it wouldn't have to be.

No they don't collapse completely - I don't recall saying that they did, however companies do.

"If I had followed your advice I would not have retired as young as I did. Housing markets can equally fall back but never totally of course."

You may have done well. I know other people that also did well. I know other people that are destitute as a result, and I know other people that are spot in the middle. If everyone did what you did would everyone be rich and retired? no - probably not, so how is this comment of use to anyone?

Your personal circumstances are not what the discussion is about. Although if you want to share, why don't you tell everyone how you became so successful. What were the risks? how did you mitigate them? what skills allowed you to only make money from shares? Do you own a house? if so - why?

"People like you really show your ignorance when you talk about shares and in doing so you scare so many people away from opportunities to grow one's nest egg."

Maybe I am ignorant, so please enlighten me to the point of a Nest Egg? I would have thought it is to provide Shelter, Food and other basic needs, when you can no longer work? By owning your own house - you have removed one need that your nest egg needs to cover - that means a) you don't require as a big a nest egg, or b) you can have the same nest egg but can lead a more luxurious life. The sooner you own it the more benefits you get.

So how exactly is owning a house earlier a bad thing?

Also if people are solely reliant on advice from a minor Interest commentator like me, then I would suggest they have much bigger problems - but hey, as long as they aren't following your advice they will at least have a roof over their heads.

PS: Out of interest, how do know what my share knowledge is? Let me guess? you garnered it all from a few comments on interest. You really must be awesome!

Your words. "Sharemarket collapses". Totally ignorant and stupidly incorrect comment .

No, he's totally correct you can look at the evidence for this. It happened in the 1930s it will happen again fairly soon IMHO. Sure the collapse wont be to zero but it will be so large it might as well be zero in the effect it has on our economy.

Not at all - A collapse does not mean complete and utter annihilation. Go google it, here's some definitions I found earlier.
http://www.thefreedictionary.com/collapse
- "An abrupt failure of function, strength, or health; a breakdown."

http://www.merriam-webster.com/dictionary/collapse
to suddenly lose force, significance, effectiveness, or worth

http://dictionary.cambridge.org/dictionary/english/collapse
(of people and business) to suddenly be unable to continue or work correctly:

http://www.oxforddictionaries.com/definition/english/collapse
(Of a price or currency) drop suddenly in value:

I could add more, but whats the point. You seem to thrive in taking posts out of context or referring to a singular detail that means nothing. You then resort to name calling and other personal put downs. Some would say a Troll, but hey I probably need to define that as well.

You used the words " you have lost everything".

Agree

I note the New Zealand Herald has an article in it this morning in which it states the NZX50 since the GFC has gone up twice what the Auckland housing market has gone up in value in the same time. Just as well I did not listen to you Nonsense. By the way I own my own home outright and I house my two children who are professionals in their own right. Buying shares in the last 30 years and accumulating them while I paid off my home mortgage certainly paid off for me. Shares beat housing markets and mortgage rates every day.

agrre, and 2009 was the best time to buy, not many people get that kind of luck in there lifetime

Depends on a) the fund, my biggest just broke even this year, (well lost $115) b) you ignore risk of loss in that 12% ie how much risk is your money under for a 12% return? id suggest very substantial. Once we go into a Depression those "gains" on paper will all be lost but the debt will remain. So personally i am clearing out and retiring debt as fast as I can.

Noncents you are talking nonsense when you talk about retiring with a mortgage of $750k. Have you added in a 0 and it should really read $500k in super and $75k in a house mortgage. Talk about exaggerating to make a point.

While you are mathematically correct you forgot about the property ladder. People will keeping climbing it until the get their last 30 year mortgage just before they retire. People are seriously doing this right now to keep costs down, and if 30 years doesn't work then they go interest only.

Which bank would lend people on the verge of retiring $750,000.00. I want to know as I want a loan off them.

Yes my mistake. You better tell the banks quickly so they can stop offering those stupid reverse equity mortgages.

Actually it is quite possible in one way and I know at least two couples in this situation, I am sure there are more. I had the option when I took out a simple "table mortgage" to do an "insurance/endowment policy" instead. So the option was, I paid off the interest only part with the difference invested in unit trusts that would pay off the capital in 25 years, plus "bonuses". I decided it was too complex for me and played safe and chose a simple table mortgage, (hacking off the bank rep no end, I could see it in his face). Thank heavens I did as a second policy I did take out at the same time would now pay at most 50% to 25% of its original projection (I cashed it in after its losses in 2009). Meanwhile two of my contemporary's took the endowment option, having stars in their eyes on the projections giving them extra $s on retirement and thinking me "old fashioned" and risk adverse" Um maybe not, they are looking at having 50-75% of the original capital still outstanding at 65, me no.

Worse their problem doesnt even consider a major house price correction, which I think is coming ie they assume they can go and pay off the capital by getting a table mortgage, at 65. Provided there is more value in the house than the mortgage they need of course, I suspect not in which case they are effectively bankrupt and have no home as the bank takes it off them.

The home owner and the investor both are being screwed. There is a suction machine that is hovering vast flows cash out of them and out of New Zealand. Once you worked and had a house you owned. You got a benefit for your work. Now you work a lifetime and will still have a mortgage. Investors are just part of the system, bringing in cash but have to pass it on.
It's not going to the 1%. It's going to the 0.0001% at a rate not seen in recent history. All your work, stress, and output is just being sucked away from you.

people have woken up that they must put their hard earned money into something that will appreciate with inflation not get eaten by it...you know like savings...

Well savings can be good. Leveraged property pigs only survive by living off the leftovers from savers.

hate the game not the player...