KiwiSaver - More help for first home buyers - but only if you can get together a 10% deposit

The Government today announced changes to the criteria for first home buyers to use their KiwiSaver for the purchase of their first home.

This will enable around 2000 more people to get into their first home.

So, cutting to the chase, what does this mean?  From the 1st October 2013:

FIRSTLY - you now need to be able to front up with a 10% deposit for you home (including the money that you can access in your KiwiSaver) - to be entitled to the First Home Buyers Subsidy.  This is consistent with the Governments aim to stop no deposit lending, but creates an additional barrier to young people who were counting on the funds that they have contributed to their KiwiSaver and the First Home Buyer Subsidy as their deposit.

SECONDLY - the total earnings that you can earn to be eligible for this subsidy have increased.  Since the launch of KiwiSaver these have been static and the adjustment is welcomed.  However,  we believe that the Government should change this, so that total earnings are adjusted annually with the increase in wage inflation.

THIRDLY - the value of the home that you can purchase has been increased from the $400,000 cap in Auckland and Wellington and the $300,000 cap in other locations.  These have been increased to $485,000 for Auckland, $420,000 for Wellington and other limits for locations with affordability issues.  Again, in our opinion, this should be adjusted with wage inflation in future.

What were the announcements? - John Key's Speech
...through KiwiSaver and Welcome Home Loans. And what I'm pleased to announce today is that we will significantly beef up those two programmes, to give more New Zealanders a helping hand into their first home. In KiwiSaver, if you have been a member for at least three years, after that period you can already withdraw not only your money but also any employer contributions and any investment income earned, and all of this can be used as a deposit on your first home.
That part of the scheme is not going to change.

But many first home buyers in KiwiSaver can also get extra assistance towards their deposit. They can get $1,000 for every year they have been a member, up to a maximum of $5,000. They are eligible for this extra help if their income is under a certain level, and they are buying a house under a certain price.

So the first thing I want to announce is that we are going relax these restrictions. At the moment, for example, a couple who want to get a first home buyers' subsidy from KiwiSaver have to be earning under $100,000 together. We are going to bump that up to a new combined income of $120,000.

At the moment, you can only get the subsidy in Auckland if you are buying a house under $400,000. We are going to bump that up to $485,000. A quick look at Trade Me yesterday showed about 2,000 house listings in Auckland under $500,000.
We are also raising the house price cap in other parts of the country with housing affordability problems. That includes Wellington, Christchurch, Queenstown, Hamilton, Tauranga, and here in Nelson. We're not helping wealthy people buy an expensive house - they can do that on their own. But we do want to help more people with low and moderate incomes get a foot in the door of home ownership. So that's the first thing.

The second announcement is around the Government's Welcome Home Loans scheme. We give about 850 of these a year to first home buyers. Under this scheme, the Government underwrites loans for eligible people who have sufficient incomes but may only have a relatively small deposit. Again, you have to meet certain income and house price criteria. But these haven't changed since 2003 and they are even stricter than the criteria that apply under the KiwiSaver first home buyers' subsidy.
So we are going to relax those restrictions and make them the same as the new criteria in KiwiSaver. And what is more, we are going to triple the size of the scheme so that 2,500 first home buyers a year will now be able to get a Welcome Home Loan.

The third and final thing I want to announce is that, in the future, to get a first home buyers' subsidy from KiwiSaver or to get a Welcome Home Loan, you will have to be able to put a 10 per cent deposit together, including what you can access through KiwiSaver. At the moment, for example, you can get a Welcome Home Loan having saved a very small deposit, or no deposit, if the house is valued at $200,000 or less. International experience shows it's risky to lend 100 per cent of the value of a first home.

So in expanding these schemes, we are assisting these people to put together a deposit, but we are also requiring them to have an initial stake in their asset as well. In total, the package of changes I have outlined complement the Government's broader programme of work on housing affordability.

It will come into effect from 1 October this year, and cost $64 million over four years.

For more information on how KiwiSaver and buying your first home works, check out our articles at:

First Home Buyer Subsidy – KiwiSaver

Student Allowances and First home buyer subsidy- the rules

First Home Buyer Withdrawal – KiwiSaver

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