KiwiSaver withdrawals for first home buyers

2015 amendment to the KiwiSaver Act 2006 means a first home withdrawal amount can be used for payments before the purchase agreement goes unconditional.

Schedule 1 of the KiwiSaver Act 2006, clause 8(7)(c)

The KiwiSaver Act 2006 has been amended so a KiwiSaver first home withdrawal amount can be used to make payments before the purchase agreement on a new home goes unconditional (to pay a deposit, for example).

Background

Under the previous rules, eligible KiwiSaver members who wanted to withdraw their savings to purchase their first home were unable to do so until the agreement for sale and purchase became unconditional. Consequently, whenever the agreement for sale and purchase was still subject to conditions at the time a deposit was to be paid, a first home buyer was unable to use their KiwiSaver savings to pay that deposit.

Key features

The KiwiSaver Scheme Rules in Schedule 1 of the KiwiSaver Act 2006 have been amended to allow KiwiSaver members to withdraw their savings to purchase their first home before the agreement is unconditional, provided any payment is made to "a stakeholder". That person is usually the vendor's solicitor, who can only release the funds in appropriate circumstances. Thus, first home buyers whose purchase agreements are conditional will be able to withdraw their KiwiSaver savings to pay a deposit.

Wherever possible, the objective is for KiwiSaver savings that are withdrawn under this rule to be used to purchase a home or returned to the KiwiSaver funds manager.

When the purchase agreement is unconditional, the original rules continue to apply, except that a solicitor's undertaking is now compulsory. Before the KiwiSaver savings can be withdrawn, the purchaser's solicitor must provide an undertaking to the funds manager that the withdrawal will either be paid to the vendors as part of the purchase price or will be repaid to the funds manager on behalf of the member if settlement of the agreement is not completed in accordance with the agreement.

When the agreement is conditional, before the KiwiSaver savings can be withdrawn, the purchaser's solicitor must provide an undertaking to the funds manager that:

  • payment of any amount of the withdrawal will be held by a stakeholder;
  • the stakeholder is obliged to hold the amount while the agreement is conditional;
  • the stakeholder is obliged to repay the amount to the purchaser's solicitor if settlement of the agreement is not completed in accordance with the agreement, except when non-completion is due to the purchaser's default; and
  • when settlement does not occur, the purchaser's solicitor will repay the amount they receive from the vendor's solicitor to the funds manager on behalf of the member.

Application date

The amendment came into force on 1 June 2015.

Detailed analysis

An agreement is conditional if it describes actions or events that must take place before the purchase can be settled.

Form of solicitor's undertaking

When the purchase agreement is unconditional, the forms of undertaking currently used by the industry can continue to be used.

When the purchase agreement is conditional, the Government interprets the Act to require the solicitor to undertake no more than what the solicitor can control:

  • The solicitor is being asked to undertake that the stakeholder is under an obligation to hold the payment while the agreement is conditional, not that the stakeholder will actually do so in practice.
  • If the agreement fails to settle other than by reason of the purchaser's default, the solicitor is being asked to undertake that the stakeholder is under an obligation to repay the amount owed, not that the stakeholder will actually repay that amount.

Consequently, the following form of undertaking is considered to satisfy the Act:

"We undertake to you that:

  1. as at the date of this undertaking, the purchase agreement is conditional;
  2. payment of any funds that we receive on behalf of the Member (Funds) will be held by a stakeholder who is obliged -
    1. to hold the Funds while the agreement is conditional; and
    2. to repay the Funds to us if settlement of the agreement is not completed in accordance with the agreement by the due date or any extended due date, except where settlement is not completed due to the Member's default; and
  3. we will repay to you as soon as practicable on account of the Member any Funds that the stakeholder repays to us.

The relevant undertakings above are restricted to confirming that the stakeholder is under an obligation to hold the funds while the agreement is conditional and to confirming that the stakeholder is under an obligation to repay funds to us in the event that settlement of the agreement is not completed. We make no undertaking that the stakeholder will actually do so in either case and accept no liability in the event that the stakeholder acts in breach of their obligations."