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First Home Withdrawal a one-off opportunity
Q.           My partner and I are looking at buying our first home. The question is, will we be better off applying to withdraw around $22,000 from our KiwiSaver accounts or leaving the money there for the long term? They say that the longer you save, the better. We can scape enough together for a deposit without using KiwiSaver, but of course we will have a bigger mortgage.    We are both in our late 20’s. 
A. Everyone who has been contributing to KiwiSaver for at least 3 years can apply to withdraw their own, their employer contributions and any investment gains to buy their first home. The process is relatively simple, and if you are eligible then your fund manager will approve your application. 
It is important to note that you can only go through this process once. Everyone in this situation should look at the option carefully as it is important to get the timing right. You have to apply to your fund manager after the agreement for sale and purchase is unconditional, but at least 10 days before settlement has taken place. The money will be paid straight to your solicitor’s trust account. It is no good buying the house without using your KiwiSaver, then applying afterwards because you are finding the mortgage repayments a struggle. By then this door of opportunity will be closed. 
If you buy your first home without using your KiwiSaver funds, do not think that you will be able to apply to your fund manager to help you buy your next home. There is a ‘second chance’ option available to people who have owned a home before (but do not currently own one) but applications need to be made to Housing New Zealand and it’s a far more rigorous process. Applicants must meet income and asset limits and there is a limit on the house value as well. The First Home Withdrawal, on the other hand, has no such restrictions.
I do take your point that withdrawing money from your KiwiSaver will make a big dent in your retirement savings. You may be hoping that your savings will earn more than the cost of your mortgage. If your KiwiSaver averaged 6% over the next 35 years, your $22,000 would grow to $170,000 – a tidy sum indeed.
However, investment returns are uncertain, so the usual advice is to repay debt before saving if you can show that it will give the better return. By joining KiwiSaver you have had the benefit of Government top ups and employer contributions that you will not have received otherwise. If you buy a house without using your KiwiSaver funds and borrow an additional $22,000, you may find the mortgage repayments a struggle. You may even be forced to take a holiday from KiwiSaver to keep up with your mortgage repayments, and that is not going to help you with your long term savings. 
Considering that you will only be in the fortunate position of a first home buyer once, you are probably better off withdrawing your $22,000 from KiwiSaver, repaying your mortgage as quickly as possible and then upping your KiwiSaver contributions to replace the money that you have borrowed. Ask yourself, if you got any unexpected windfalls, would you put that in your KiwiSaver or use the money to pay off your mortgage? Most would agree that the latter is the wiser course of action. 
The cost of buying a house is not just the price tag, there are often additional costs to make it more comfortable for you. So don’t make life harder for yourselves by borrowing more than you have to.