If you’re planning on buying your home in 2025, then you need to consider how you’re saving your deposit.
A lot of Kiwis are using their KiwiSaver as the main source of the deposit, and in some cases, the only source. If that’s the case, you probably want to move your KiwiSaver to a more conservative cash fund so that you don’t end up having a loss should the share market or the New Zealand dollar move in the wrong direction for you.
Unfortunately, many of the providers never give this advice, and in the weeks before you need money, you could see a substantial drop if the market changes. It’s not worth the risk for the sake of trying to get a little bit higher return, especially when you’re talking about such a short term of less than a year.
The other mistake we see a lot of people make is they have their savings sitting in term deposits. Now, normally that’s not such a bad idea because it locks the money away so that you cannot touch it. But we’ve come across a lot of first home buyers who have their money tied up in term deposits, and then when they go to use the money, it’s not accessible for them.
Of course, their plan might be to buy the house in October, but then in July they see the perfect house and want to move quickly. But having their money locked in a term deposit makes that difficult and it’s sometimes impossible.
There are some good alternatives, and what we’re seeing is the NoticeSaver type accounts becoming more and more popular. Whereas a term deposit might pay you up to 5% interest rate for a 12-month lock-in period, or a non-bank finance company might offer 6.5% for that same type of period.
If you choose instead to use a NoticeSaver account, then they have a few options. Both KiwiBank and Heartland Bank have a 32-day and a 90-day option. The 32-day option has KiwiBank paying 3.55% and Heartland 4.25%, while the 90-day option has KiwiBank paying 4.1% versus Heartland at 4.5%.
The other option is a 60-day NoticeSaver account, which Robobank offers, and they’re paying 4.15%. Now, these interest rates are slightly less than what the term deposit might pay, but if you consider the advantage of the flexibility versus the slightly lower interest rate, then most of us would want the flexibility first and foremost.
If you had $10,000 at 5% or $10,000 at 4%, then the difference is only $100 a year or less than $10 a month in the interest that you’ll be forgiving by going to a NoticeSaver instead of a term deposit. That makes a lot of sense to most of us.
If you do like the idea of a term deposit, then another option you could consider is some of the cash funds available. NZFunds offer a very good cash fund that invests in term deposits with ANZ, ASB, BMZ, KiwiBank, and Westpac.
But whereas doing the term deposit directly with the bank means you’re locked in, the cash fund is unlocked so you can get your money out within a few days but still get the advantage of the higher interest rates. They do this because of the amount of money they are investing, which they stagger across a range of term deposits with those five banks.
2025 will be an interesting year, and there could be some great opportunities for first-time buyers. The key is to be ready to move when the right opportunity comes along. That includes having your savings available to you and moved out of any potentially high-risk or low-risk areas of your life.
And that includes having your savings available to you and moved out of any potentially high-risk KiwiSaver fund into something more conservative and stable. It’s also a great idea to get pre-approved for your mortgage well before you need it, and that way you can identify any issues that might arise.
You can make changes to get yourself into a better financial position.
Feel free to reach out to any of the team at Mortgage Managers, as they are very experienced with first-time buyers and operate the Kiwi first-time buyers group, which is a great place for advice.
