Using KiwiSaver for your deposit towards your first home: what you need to know…

A first home buyer  intended to use her KiwiSaver funds for the payment of the deposit under an Agreement for Sale and Purchase she was signing to purchase her first home.  However, this was not discussed with the agent or her lawyer prior to the agreement being signed. 

Once her lawyer received the Agreement, they asked whether she would be using her KiwiSaver funds for the purchase.  She confirmed she would be and that she intended to use these funds to pay the deposit as she did not have any savings readily available to use.  

The Agreement did not include reference to the deposit being paid using KiwiSaver funds.  This resulted in the first home buyer’s lawyer having to enter into negotiations with the vendor’s lawyer to amend the terms of the Agreement in respect of the deposit, which meant she incurred additional legal fees. 

Why does the Agreement need a special clause included when the deposit is being paid by KiwiSaver funds?

When KiwiSaver funds are used for payment of the deposit, the vendor’s lawyer needs to hold these funds undisbursed until settlement, which is not the standard practice. 

The standard practice is for the agency to receive the deposit funds once the agreement has become unconditional and hold them for 10 working days (or longer in the case of a Unit Titled property).  After the 10 working days the agent can deduct their commission from the deposit and transfer the balance to the vendor’s lawyer.

If you are paying the deposit on a property using KiwiSaver (and/or Superannuation funds), your agreement needs to include a specific clause which confirms that the vendor’s lawyer will undertake to hold these funds undisbursed until settlement. 

Your legal advisor can provide you with required clause wording to add to your Agreement.

Why does this undertaking matter?

To withdraw KiwiSaver funds for the deposit, a purchaser’s lawyer must give the KiwiSaver provider an undertaking that the funds will be held undisbursed until settlement and that if settlement does not go ahead (due to no fault of the purchaser), then those funds will be repaid to the KiwiSaver provider.

Because a purchaser’s lawyer needs to give these undertakings, they require reciprocal undertakings from the vendor’s lawyer as it is the vendor’s lawyer who is in control of the deposit funds once received.  Having a clause in the Agreement for Sale and Purchase recording this arrangement ensures that the vendor’s lawyer will comply with the requirements.

Why do the KiwiSaver funds have to be returned if the purchase does not proceed?

If settlement does not occur through no fault of the purchaser the deposit is refundable. The repayment undertaking confirms this and is important because KiwiSaver funds can only be used for the purchase of a property and the purchaser is not entitled to receive these funds personally.  Therefore, if the purchase does not happen, the KiwiSaver funds must be returned to the KiwiSaver provider.

Does the inclusion of this specific clause create any extra risk for the purchaser or the vendor?

The inclusion of this clause does not create any extra risk for purchaser or the vendor. 

Once an agreement is unconditional, a purchaser cannot withdraw their offer.  The inclusion of this specific clause does not hinder the vendor’s ability to enforce the Agreement in the usual way if a purchaser defaults.

Furthermore, the KiwiSaver deposit clause does not give the vendor any additional rights beyond those that already exist under the Agreement.

Conclusion

If intending to use your KiwiSaver funds for payment of your deposit, we strongly recommend that you seek legal advice before entering into any Agreement to ensure that your intentions are accurately recorded in the Agreement.