Buying your First Home

Tips for Home Buyers

For first home buyers the next few months are shaping up to a good time to buy and  there are three reasons for this. Firstly, we are seeing a decline in property prices as winter sets in. Some property investors have reacted to the last budget by choosing to sell and this has had an impact at the lower end of the market. Mortgage interest rates are expected to increase over the next few months and this will help keep property prices in check.

The second piece of good news for first home buyers is that from 1 July, 2010 you can you use some of your KiwiSaver funds for your house purchase providing you meet certain criteria. You must have been a member of KiwiSaver for at least three years and the house you buy must be one that you plan to live in yourself for at least six months. You will be able to withdraw the contributions you have made to KiwiSaver plus your employer contributions and investment returns. As well, you may be eligible for a subsidy of $1,000 for every year you have been a member of KiwiSaver up to a maximum of $5,000. To be eligible, your income and the value of the house you are buying must be within certain limits.

Thirdly, you may also be eligible for a low deposit loan through Housing New Zealand’s Welcome Home Loan scheme. With this scheme, you can borrow up to $200,000 without a deposit and up to $280,000 ($350,000 in some areas) with a 15% deposit on the amount above $200,000. That means you can buy a $280,000 house with a deposit of $7,500 and your KiwiSaver money (contributions plus subsidy) will count towards your deposit.

Now is definitely a good time for first home buyers.

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How to Manage Your Revolving Credit

Crunch your Credit

A line of credit, or revolving credit, is a very useful facility to have as part of your mortgage structure. The way it works is that you are committed to pay back only the interest each month and interest is charged only on the amount borrowed. Repayments of principal can be made at any time without penalty and the more you repay, the less interest you pay.
One key advantage of a line of credit is that if you run short of funds you can spend or withdraw up to the limit that has been set. This means that you can pay all your spare cash into your line of credit to keep the balance and the interest down, knowing you can grab it back at any time. If you have a mortgage, the best return you can get for your emergency savings is to ‘invest’ it in a line of credit. The return you get will be the interest you save on your borrowing.
Some mortgage brokers and lenders advocate using a line of credit as a transaction account for receiving income and paying all your living expenses. In theory, this will ensure your loan balance is kept as low as possible. In practice, this system usually fails because unless you are very disciplined it becomes almost impossible to keep to a budget. It is better to instead make a regular payment each payday into your line of credit to reduce the balance.
Some banks are now offering customers the ability to offset balances in a range of accounts, which is a great way to keep your savings separate from your mortgage. You will only pay or earn interest on the net balance of the range of accounts. The more you save, the more you will crunch your credit!

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Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.
Traditionally, fund managers have had full discretion to invested funds based on expected financial return, however investors are now demanding more information about where their money goes and whether they are unwittingly supporting the expansion of companies that are harming society or the environment. Responsible investing describes an investment strategy which seeks to maximize both financial return and social good.
In the early days of responsible investing, funds typically used what is referred to as a ‘negative screen’ for selecting investments, which means they avoid investments in such things as tobacco, alcohol, gambling and armaments. Later came funds using a ‘positive screen’ which means they sought out investments in companies whose products are good for society or the environment, such as companies involved in clean technology (eg wind farms or water purification). More recently, fund managers are using a range of environmental, social and governance (ESG) criteria to assess companies. As responsible investing grows in momentum, fund managers are using the voting power they have as shareholders to directly influence the ESG policies of companies an approach sometimes referred to as ‘shareholder activism’.
The evidence clearly shows that companies with sound ESG policies also produce excellent financial returns, so that responsible investors can indeed be rewarded for their contribution. For more information, contact your adviser or the Responsible Investment Association of Australasia

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Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July. The maximum value of the tax credit is the lesser of $1,040 or the total of your contributions for the year. If you have put in $900 through deductions from your pay, then your tax credit will only be $900. By putting an extra $140 into your account before the end of June you will get the full tax credit of $1,040.
If you are contributing 2% of your pay into KiwiSaver and you earn less than $52,000 a year, or if you are contributing 4% of your pay and you are earning less than $26,000 a year, you will need to top up your KiwiSaver account to get the full tax credit. To find out how much you need to top up your account by, check your contributions with either your product provider or your financial adviser.

If you are self employed or not working and under the age of 65, you can still become a KiwiSaver member by joining directly with the provider of your choice. By contributing $1,040 a year as a either a single payment or $84 a month you will get the full benefit of the tax credit. It is not too late to join now. New members will receive the Government kickstart payment of $1,000 and a tax credit for the first year based on the number of days of membership.

Get your payments in as soon as possible to allow time for processing!

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Budget Winners and Losers

The latest Government budget had something for everyone but while most households will be a few dollars a week better off, there are some clear winners and losers. In the winners’ corner are businesses, those on high incomes, and savers. The biggest losers are property investors who have built large portfolios financed partly by tax rebates.

Owners of investment property have been able to deduct depreciation from their rental income, thus reducing the amount of tax they pay on rental income and in many cases resulting in large tax rebates. These rebates were used to repay money borrowed for the purchase of the property. From April 2011, investors will no longer be able to claim depreciation on most properties. Some investors with large portfolios will find it difficult to make debt repayments without this tax break and may be forced to offload properties. Investors who tough it out and keep their properties will find they need to increase rents to get a decent return. There will be a shortage of rental properties which will ultimately put even more pressure on rents.

The other group of losers from this budget will therefore be those who are renting. On the plus side, the sell-off of investment properties will keep prices low for first-home buyers and it will become more attractive to buy rather than pay high rent.

While income tax rates have been lowered, GST has been increased and this creates an incentive for people to save so as to get the maximum benefit from tax cuts. Over 60% of eligible people have not yet joined KiwiSaver, and this should be a priority for savings. The minimum contribution for KiwiSaver is 2% of pay and tax cuts will be around 1.5%. The message is clear; save and you win, spend and you lose.

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