Should you use KiwiSaver to buy your first home?

Just like popping the question or changing career, deciding if and how you'll purchase property is a big decision. Beyond the choice to buy a home, figuring out how you'll access the capital to purchase it can present some difficult questions. In particular, many ask whether they should make a withdrawal from their KiwiSaver to buy their first home.

Let’s weigh up the pros and cons of using your KiwiSaver to buy your first home.

How KiwiSaver helps you buy your first home

In most cases, withdrawal from any superannuation fund like KiwiSaver isn’t possible until retirement. Financing your first home deposit is one exception to this rule.

If you're eligible, you may be able to withdraw the value of your savings, your employer's contributions, any investment returns and tax credits, provided the minimum balance of $1,000 remains in your account.

To be eligible you need to have been a KiwiSaver member for three or more years and must be buying your first home - not an investment property. People in a similar financial position to first home buyers, but have previously owned a house, can contact Housing New Zealand to determine their eligibility.

First home or retirement savings?

This is the question you need to ask before you decide to make a KiwiSaver withdrawal. Your KiwiSaver exists to ensure you can live a comfortable retirement - helping you accrue savings from your income and investment returns. Think carefully about your priorities and crunch some numbers to determine if a withdrawal is worthwhile.

What do you need for retirement?

What sort of retirement do you imagine living? Most of us picture a better lifestyle than we may be on track for, according to data released by the Westpac Massey Fin-Ed Centre (the Centre) in July 2018.

The average weekly expenditure for a one-person household living a "No Frills" lifestyle in a major city is $590.44 - notably higher than the current $400.87 NZ Super rate. Assuming you'd like to retire at 65 and enjoy retirement for 15 years, you'd need retirement funds of roughly $148,200 ($190 per week).

That said, a more lavish lifestyle - one which allows you to travel, for example - calls for a weekly expenditure of $1175.17 (assuming the same conditions as above). This means you'd require a KiwiSaver balance of $603,954 ($774.3 per week). There's a considerable discrepancy between these two lifestyles and while you may not find you need all the funds a lavish lifestyle calls for, you should consider when you want to stop working and how you want to live in retirement before withdrawing your savings. 

What do you need for a home?

There are considerable costs associated with finding your first home - from legal and moving services to bureaucratic fees - as well as the purchase price of your house. As of June 2018, the median purchase price in New Zealand is $560,000 - or $460,000 excluding Auckland, according to the Real Estate Institute of New Zealand.

You will typically need a mortgage to buy your first home. Ideally, you'll secure your loan with a deposit equivalent to 20% of the purchase price - a median $112,000. This is not hugely dissimilar to the required KiwiSaver balance for a "No Frills" lifestyle listed above. 

Why not both?

As rent and mortgage repayments can cost more than the weekly NZ Super rate, becoming mortgage free by retirement might be advisable.

Consider the cost of a mortgage, your stage in life and how these could affect your expenses in retirement. For example, if you're in your 20s you likely don't have a comparable KiwiSaver balance, so without other means of building your deposit you'll require a much larger mortgage. It may be better to spend time building your deposit and KiwiSaver balance before considering making a withdrawal.

While those in their 50s might have enough to put down a deposit, possibly even larger than 20%, affording to repay that mortgage may require working past 65. In this case, focusing on growing a KiwiSaver balance which can support housing costs may be a better option.

Someone in their 30s could have a greater balance to assist in financing their first home, while still having 30 years to comfortably repay a mortgage and accrue a more retirement savings before reaching 65.

Ultimately, your decision to access your KiwiSaver should be carefully weighed against your financial situation and plans for the future. Make sure your first home purchase is a well-considered process.

To find a house that fits in your budget, turn to realestate.co.nz. With the greatest number of property listings in the country, there's a home for anyone.