Using KiwiSaver to Buy a Home: What You Need to Know

Navigating the path to homeownership in New Zealand can be both exciting and daunting, especially for first-time buyers. One of the most significant advantages available to these prospective homeowners is the ability to withdraw funds from their KiwiSaver accounts to assist with purchasing their first home. Understanding the importance of this option is crucial, as failing to take advantage of it can have long-term financial implications.

KiwiSaver: A Brief Overview

KiwiSaver is a government-backed savings scheme designed to help New Zealanders save for retirement. It allows individuals to automatically contribute a portion of their income (as allocated by the individual) of between 3% and 10% of their income, which is then supplemented by employer contributions and government incentives. While KiwiSaver is primarily aimed at retirement savings, it also offers specific provisions for first-time home-buyers, making it an invaluable resource for those entering the property market.

Why Withdraw KiwiSaver for Your First Home?

1. Access to Significant Funds: For many first-time buyers, saving for a deposit can be one of the biggest hurdles. KiwiSaver allows you to withdraw your savings (and any government contributions) to help with the deposit for your first home. This can provide you with a substantial financial boost, making home-ownership more achievable.

2. Reduced Financial Pressure: By utilising your KiwiSaver funds, you may be able to reduce the amount you need to borrow. A lower mortgage amount not only makes your monthly repayments more manageable but also decreases the total interest paid over the life of the loan.

3. Building Equity: Owning a home allows you to build equity over time. By using your KiwiSaver to enter the housing market sooner, you can start building this equity, which can contribute to your long-term financial stability.

Reasons to Consider Withdrawing

Choosing not to withdraw from your KiwiSaver account when buying your first home means that you are effectively leaving a significant financial resource untapped. If you are hesitant or even unsure as to whether to withdraw your KiwiSaver funds consider the following:

1. Delayed Home-ownership: Without accessing your KiwiSaver funds, you may face longer delays in accumulating enough for a deposit, which can prolong your journey to home-ownership. Given that property prices generally increase over time, waiting could mean needing an even larger deposit down the line.

2. Increased Financial Strain: Without the help of your KiwiSaver, you may have to rely solely on personal savings or family support, potentially putting additional pressure on your finances. This could result in a larger mortgage, leading to higher repayments and increased financial stress.

3. Retirement Savings Locked In: KiwiSaver funds are primarily intended for retirement. If you do not withdraw for your first home, your savings remain locked in until retirement age and/or serious illness. While saving for retirement is essential, having a home can also be a crucial part of financial planning, and delaying home-ownership could limit your overall financial growth.

4. Missed Opportunities for Home Equity: Not investing in property at the right time can mean missing out on potential appreciation in home values.

Potential Downsides of Withdrawing Your KiwiSaver

While using your KiwiSaver for a first home deposit can be a smart financial move, it’s important to consider potential downsides before making your decision.

1. Reduced Retirement Savings: Withdrawing from your KiwiSaver now means having less saved for your retirement. While homeownership can contribute to long-term financial security, it’s worth considering whether this will leave you short of funds later in life. If you do withdraw, creating a plan to boost your contributions post-purchase could help offset the impact on your retirement savings.

2. Market Risks and Changing Property Prices: The property market fluctuates, and while home-ownership is generally a good investment, there are no guarantees. If house prices drop after you purchase, you may not see the immediate financial gains you anticipated. On the other hand, keeping your KiwiSaver funds invested could allow them to grow over time, potentially leaving you in a stronger financial position later.

Summary

Withdrawing from your KiwiSaver to assist in purchasing your first home could be one of the most financially savvy decisions you make. It offers immediate financial assistance in securing a property, reduces borrowing costs, and allows you to start building equity sooner. However, it’s also important to consider the long-term impact. Withdrawing now means reducing your retirement savings, and property prices can fluctuate, which may affect the financial benefits of homeownership.

Ultimately, the decision to withdraw your KiwiSaver for a first home should be made with careful consideration of both short-term benefits and long-term financial security. If you’re unsure whether it’s the right move for you, seeking financial advice can help you make an informed decision.

For those looking to buy their first home in New Zealand, understanding the KiwiSaver withdrawal process is essential. Taking proactive steps to utilise this resource wisely can open doors to home-ownership while ensuring your financial future remains on track.

Please get in touch with our property team if you have any questions relating to KiwiSaver withdraws or you need assistance with a property matter.