We notice that a lot of our first home buyers get confused regarding how and when they can apply their Kiwisaver withdrawal which is completely understandable when all Kiwisaver forms mention withdrawal can be used for a deposit! But.. when using Kiwisaver withdrawal for a deposit under an agreement for sale and purchase and not necessarily the purchase price on settlement, there are some additional hoops you need to go through.
The purpose of this blog is to help explain the legal requirements with using Kiwisaver as a deposit and follows on from our blog entitled “Deposit to be Paid to the Real Estate Agent vs Deposit for Bank”.
Timeframes for Kiwisaver:
It is important you get in touch with us as soon as possible if you haven’t already prior to entering into an agreement for sale and purchase if Kiwisaver is a component of the funds you need to contribute towards the purchase price, whether that is in the form of a deposit or to be paid on settlement.
Kiwisaver withdrawals can take 10 working days once you have provided all the required documentation to your Kiwisaver provider. This can take up to 15 working days dependent on the Kiwisaver company (some are considerably slower than others) and whether you have resided outside of New Zealand since you have been contributing. If you have resided outside of New Zealand since you have been contributing to Kiwisaver, your Kiwisaver provider will need to liaise with the Inland Revenue Department to ascertain any “claw-backs” in terms of Government contributions during the time you have lived overseas so you can appreciate this can take time!
Kiwisaver being used as a deposit:
Kiwisaver providers require when Kiwisaver funds are being used for this purpose that the Kiwisaver withdrawal must be paid to a Stakeholder until settlement. A Stakeholder in this instance can only be the vendor’s legal professional and cannot be the real estate agent.
In addition to the Kiwisaver funds needing to be paid to a Stakeholder, Kiwisaver providers also require confirmation from the Stakeholder that if settlement did not proceed for any reason due to the default of the vendor only that the Kiwisaver funds are reimbursed back into the Kiwisaver managed fund account.
When paying a deposit comprising of Kiwisaver withdrawal to a real estate agent directly (as most agreements for sale and purchase require) the Stakeholder component is removed and therefore both your legal professional and you as a Kiwisaver member are in default of this requirement.
However, we can get around this if we are notified early enough!
When we act for first home buyers that have no savings or ability to obtain deposit funds other than Kiwisaver withdrawal the following scenarios would happen to ensure you are protected and able to use your Kiwisaver:
- If we are provided the opportunity to review the agreement for sale and purchase prior to you signing we will always request specific changes are made to the agreement that allow for the deposit to be paid to the vendor’s legal professional’s trust account as Stakeholder and undertakings (a legal promise) are provided prior to payment that the Kiwisaver funds are reimbursed to our trust account without deduction in the event of vendor default; or
- If you have already signed an agreement for sale and purchase that provides for the deposit to be paid directly to the real estate agent and you intend to use Kiwisaver for this we would request the agreement be varied in correspondence to change how the deposit is to be paid. This is usually completed during the conditional period and when working your way through your conditions. Changes to the agreement for sale and purchase would provide the requirement of the deposit to be paid to the vendor’s legal professional as Stakeholder on undertakings to reimburse to our trust account without deduction in the event of vendor default.
It is important to note that any variation to the already signed agreement for sale and purchase as mentioned in option 2 above, is at the vendor’s discretion. The vendor must agree to this change so it is always preferable that any agreement for sale and purchase you sign has this already taken care of.
Kiwisaver being used on settlement:
Often our first home buyer clients are working with tight timeframes and have either family that can help them with their deposit to be paid or savings of their own, then requiring Kiwisaver withdrawal for the purchase price on the settlement date.
Kiwisaver timeframes for withdrawal as mentioned above can be 10 – 15 working days. We always recommend you allow for 15 working days as a minimum to be on the safe side so it is important the settlement date allows for processing times.
Kiwisaver withdrawal is then completed as usual and paid as part of the purchase price to the vendor’s legal professional without any issues.
If you have any queries at all regarding Kiwisaver and how best to apply it to your purchase, please get in touch – we are happy to help.