NZ Herald 4 April 2009

AWhat’s wrong with a first home buyer purchasing “a dump”? That’s the way it’s meant to work, isn’t it? You buy a small, shabby house in an unstylish neighbourhood, or perhaps one of those tiny inner city units, and throw a bit of paint at it. Some years later, you trade up to something better.

Admittedly, a couple of years ago even dumps were going for pretty high prices. But — despite recent news that some mortgage rates have risen — the numbers are generally looking better.

Interest.co.nz editor Bernard Hickey, who monitors house prices, mortgage rates, income trends and so on, said recently, “Affordability for most home buyers has improved dramatically and will continue to get better through the rest of 2009 as house prices ease and take-home pay improves.”

He did add, though, “The only complication for first home buyers is the increasing requirement by banks for a deposit of 20 per cent or more.”

That’s where the KiwiSaver subsidy, of up to $10,000 for a couple, comes in. And, by the way, it might apply to you. The government has said that people who no longer own a home, but are in “much the same financial circumstances as first home buyers”, may be able to get the subsidy. Look for more info on that on www.hnzc.co.nz later this year.

AGood on you for planning towards buying a house so young. And it looks as if you’re on target to get the KiwiSaver first home subsidy.

The government announced a couple of weeks ago that employees must save 2 per cent of their pay — down from the previous 4 per cent — to qualify for the subsidy. If you save at least 2 per cent for three years, you get $3000 towards your first home. That rises gradually to $5000 after five or more years.

Because a student allowance is taxable income, it’s treated similarly to wages in this situation. That means you could reduce your contributions now to 2 per cent of your allowance if you wish.

Housing Minister Phil Heatley said then that “the same principle will apply” for non-employees, but details weren’t available. He has now given more specific information about the requirements for non-employees, as follows:

• The self-employed will need to save 2 per cent of their gross (before tax) taxable income in the year prior to the financial year in which the contributions are made. In other words, look at last year’s tax return.
• Beneficiaries will need to save 2 per cent of their gross benefit.
• Other non-earners — who would include non-working students, caregivers and others — will need to save 2 per cent of the minimum annual wage, which amounts to $520 a year or $10 a week.

People in all three groups will be able to top up their contributions before the end of each KiwiSaver year, on June 30, to get to the required savings level for that year.

It’s great to have that spelled out at last. And you read it first here!

But under the previous rules non-employees had to save “around 4 per cent” of their gross pay. What if somebody’s saving, up until now, has been high enough to meet the new rules, but not the old rules? Will that period of saving count towards their three to five years for getting the subsidy?

A government official says “probably not”, but adds, “we intend to confirm this with the ministers (of housing and finance) at the end of June 2009.”

That’s not a concern for you, though. Your $20 a week before you got the student allowance easily covers you.

AThere are two sets of rules. One is for withdrawing KiwiSaver money for your first home; the other is for getting the first home subsidy.

The withdrawal rules are easier. Anyone on any income, buying a house in any price bracket, can withdraw their own KiwiSaver contributions plus employer contributions and investment returns on all the money, to put into a first home. The government’s $1,000 kick-start and tax credits must stay in their KiwiSaver account.

They have to be in KiwiSaver for three years to do that, but there are no rules about how much or how frequently they must contribute.

For the first home subsidy, there are income and house price caps that I’ve gone into in recent columns. And, as the Q&A above says, unemployed people need to save 2 per cent of their before-tax benefit for three to five years.

If you were to stop for a while, that period wouldn’t count toward the three to five years, but you could start counting again when you started contributing again.

As for being out of the country, as long as you are away only temporarily, and your principal place of residence is still New Zealand, you can keep contributing to KiwiSaver at the same rate as if you were here, and you’ll still be eligible for the first home subsidy.

However, if you live overseas, you would no longer be eligible for the subsidy because you have to live in the house for at least six months after you buy it — and it has to be a New Zealand house.

What if you lived overseas but kept contributing to KiwiSaver, and then came back to New Zealand to live? Would those years overseas count towards the three to five years? That’s another one the government hasn’t yet decided on.