Until now there has been two separate strategies for first home buyers trying to get their deposit together. That could all be about to change.
The first has been to put every extra cent into KiwiSaver. It supercharges your money with an employer contribution and government contribution, before you even get any investment return.
The problem there was you were only allowed to withdraw it for a first home that you were going to live in yourself.
For those trapped in an expensive city like Auckland or Queenstown, or even Tauranga or Wellington, that doesn’t seem like an option.
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They don’t see a way they’ll be able to save up a deposit that size, and many don’t have the option to leave for a cheaper town at this point in their career.
So some opted to save outside of KiwiSaver, missing out on thousands of dollars in incentives, so that they could buy an investment property in a town they would like to move to at some point in the future.
Listen to the Cooking the Books podcast on this topic below:
They say that change is as good as a holiday though, and it seems KiwiSavers could be about to get a break.
The Retirement Commissioner is considering a change that would let you use your KiwiSaver for any first home deposit. Whether you live there or not.
So you could save diligently into your KiwiSaver, and keep the options of both buying in your current city, or future dream location.
Woohoo, you think. Give it the tick.
Well, there’s a reason they’re still debating it. Not everyone will be a fan of this change.
There are those who argue that KiwiSaver is for your retirement savings, not a house deposit.
You can’t eat a house, so you definitely need money saved for retirement. The pension alone won’t cut it, unless you want to become one of those people who can’t turn on the heater in winter.
Then there are those who worry this will fuel future house price increases.
House prices have already shot up to jaw dropping levels, and allowing more people into the market would arguably fuel those shooting up further.
Both are fair, but on balance, I disagree with both.
If you’re in your 20s or 30s, you have plenty of time to cash in for a KiwiSaver house deposit, and then keep on saving.
Yes you’ll have slightly less when you retire, but you’ll also have a house. That means stability, and dramatically reduced living costs.
On the house price argument, I actually think this could help. Allowing people to buy elsewhere for their first home means housing demand will be spread outside of those overheated main centres.
Rather than being forced to frantically save more and more, and then commit to an overpriced house just to get a foot on the housing ladder, people could opt to go elsewhere.
Personally, I can’t think of a better landlord than someone who is also a renter elsewhere. They’ll remember the reality of the renter’s situation.
There may be drawbacks, but that’s life. Everything has a price.
The price here is a small one, for helping people access the stability of a first home that fits their lifestyle – not the arbitrary rules of a scheme that’s currently only helping some people.
Listen to other episodes in the series:
Episode 1: Buy v rent
Episode 2: Saving for a deposit
Episode 3: Negotiating a mortgage
Episode 4: The power of location
Episode 5: Tricks for paying off the mortgage faster
Episode 6: How to crush the debt
Episode 7: Apartment v house
Episode 8: Renovate or detonate?
Episode 9: How to solve land headaches
Episode 10: Is now the time to get nervous about your KiwiSaver?
Episode 11: How to house hack your way to smaller household bills
Episode 12: The tough talk you need to have when saving for a house
- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial adviser, and all information is general in nature. For individual advice, see a financial adviser. Listen to her podcast on OneRoof.co.nz
