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G & J

Affording Your First Property

It is quite understandable that the rate of home ownership in New Zealand has fallen in recent years. Just under 65% of households owned their own home at the time of the last census in 2013, and this is the lowest it has been since 1951. The rapid increase in property prices since 2013 has most likely lowered this percentage. In the higher priced areas such as Auckland, the rate of home ownership, especially for those who would historically be considered as first home buyers, would most likely be a lot lower.

House affordability is only one reason people rent. Other reasons include the flexibility to be able to travel, the desire to live in a more desirable location, perhaps close to work or close to good schools which would otherwise be unaffordable, and freedom from the responsibility and cost of house maintenance. These are all sensible reasons to rent, however renting over the long term has serious consequences for retirement.

The stumbling block for home ownership is usually saving sufficient money for a deposit. Paying a high rent while trying to save for a deposit is fraught with difficulty. High after tax income is required to make much savings headway when renting, which often occurs at the same time as raising or starting a family.

KiwiSaver schemes offer an excellent way of getting ahead for first home buyers. The trick is to join a scheme once you turn eighteen. You then need to make sure that you contribute at least sufficient to obtain the government’s fifty percent annual contribution of $521 if you have contributed at least $1,042.

You then need to have been a scheme member for at least three years before you can become eligible for the KiwiSaver HomeStart grant.

The two HomeStart grants are:

  • For purchasing an existing home, the grant is between $3,000 and $5,000 based on $1,000 each year of KiwiSaver membership.
  • For building or purchasing a new home, or for purchasing land to build a new home on, the grant is, in effect doubled to, $2,000 per year of membership in the scheme, up to a maximum of $10,000 for five years for each member.

There are maximum values of grants payable for the purchase of a single dwelling, regardless of the number of eligible purchasers:

  • $10,000 for the purchase of an older/existing property
  • $20,000 for the purchase of a new property.

You will also have your own KiwiSaver contributions and that of your employer which you could also use for the property purchase, although you do need to maintain a minimum balance of $1,000 in your KiwiSaver account.

If your total contributions were $3,500 per year, subject to market returns, fees etc., after five years you may have $17,500 available from the fund to use towards your property purchase. Add in additional savings outside of your KiwiSaver and you should have a pretty good deposit for buying in many parts of New Zealand. Be realistic, unless you have a serious amount of money saved, don’t expect to be able to afford a high-priced property as your first home.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.