Housing hacks with Simplicity and Squirrel
So, you want to buy a house?
If you live in Auckland, perhaps you've flagged it given current housing prices. Or perhaps you're looking to play a long game, socking away your savings until the market softens or else you reach your goal. Maybe you live in the provinces where housing prices aren't so crazy so you're a bit closer to realising your dream. Either way, there's a few things to know about using your KiwiSaver and how best to negotiate a good mortgage.
Some accumulated wisdom and tips on my experience to follow, plus some tips on how to use KiwiSaver optimally to help get you there faster. We'll also follow this with some tips from the head Squirrels at Squirrel Mortgages who have a few nuggets of wisdom to share too.
1) Before you go shopping, sit down and figure out what you can realistically afford to buy. Also, consider the long-term impact of buying when it comes to your mortgage repayments, taking into account both principle and interest. The financial website Interest.co.nz has some great tools including a mortgage calculator to compare the effect of different mortgage rates over different repayment periods. The numbers could shock you but to be forewarned is to be prepared financially.
2) Once you've decided home ownership is within your reach financially and it's really what you want, get your ducks in a row for the deposit. It's currently 20%. If you're already saved up, sweet, otherwise it'll be a full court press to save, save save.
3) As a first time buyer, you're eligible to use your KiwiSaver funds provided you've been in KiwiSaver for at least three years. The government's KiwiSaver website outlines everything you need to know about how to tap your funds. What can you expect?
Effective 1 April 2015 and onwards your KiwiSaver withdrawal may include:
- your members contributions
- any employer contributions (voluntary and compulsory)
- any returns on investment(s) received
- any member tax credits.
NOTE: A a minimum of $1,000 will be left in your account. Also, any money transferred from an Australian superannuation scheme, is excluded from the KiwiSaver funds for the purposes of home ownership. And further, member tax credits received while you lived offshore may be clawed back by the IRD as well.
4) With Simplicity KiwiSaver, you'll need to give us the heads up that you're buying so we can organise the release of the funds. Contact our customer service department (aka Craig) and he'll send you instructions and details on what you need to provide to us. It takes a few days so don't wait until the last minute.
For Simplicity the process is:
- Request the First Home Withdrawal Form
- Complete the form and return 10 working days prior to settlement or when funds required
- Approximately 1 week before settlement the withdrawal is processed and the funds paid to your solicitors bank account
You might also be eligible for a KiwiSaver HomeStart Grant which could help you out even further on the deposit. You need to have been in KiwiSaver for a minimum of three years and be over the age of 18. There are also income thresholds that apply: $80,000 (before tax) for an individual and $130,000 (for a couple). There are some restrictions on house prices as well so be sure to read up on their website the T&Cs. Talking to Housing New Zealand about your situation might be useful in case there are other grants you might be eligible for.
If you're planning on using your KiwiSaver funds to help with the deposit, you might want to max out your saving potential through this channel as it's a quick and forced way of saving. By upping your contribution rates to 8% you can save even faster. Just bear in mind which fund you are invested in, and the associated risks. Growth funds have a higher allocation of shares, which are vulnerable to market shocks. If you are planning to tap your KiwiSaver funds in a shorter space of time, market volatility may negatively impact your deposit levels. Seek professional advise if you're confused.
With Simplicity, you can get some projections on how much you'll have by a set point in time, using different contribution scenarios of 3%, 4%, and 8%. For your other savings outside of KiwiSaver, check out Sorted.org.nz Tool section, which can also help you plan to reach your saving goal faster.
As part of your overall savings strategy, look at paring by where possible. Small sacrifices will add up over time. Set a plan and stick to it.
It's not as common in New Zealand but other countries are quickly barrelling toward DIY home sales using digital advertising platforms like Reali in California and other new technologies geared to matching home buyers and sellers and cutting out the middleman. There are more than 15,000 licensed realtors working in New Zealand, another 3,000 plus with suspended licenses. Realtors can be helpful but make sure you're getting something in return for the commission you'll end up paying.
Before you buy, pay for an engineer's report to make sure the house isn't a money pit. If you're going to shell out $1 million on the place, paying another $200-300 to a builder's report is money well spent. The LIM report will tell you only so much.
And last but not least, make sure you get the best mortgage rate possible and the one that suits your situation best. If you're not a shrewd negotiator, hire a broker who will do it for you. Make sure you get them to disclose first if they have any special relationships with certain banks, in case you are missing out on a cheaper deal somewhere else because they don't deal with a particular bank.
For more housing hacks, we've reached out to Squirrel Mortgages.
We'll post that next week.