Budget 09: Mortgage option too good to last

A Kiwisaver provision allowing members to direct half their retirement money towards paying their mortgages was flawed but necessary in the downturn, brokers say.

Some are challenging the Government's decision, passed under urgency, to cancel the mortgage diversion clause at a time many homeowners are finding it hardest to meet their loan payments.

Nick McCorkindale, a director of the Mr and Mrs Kiwisaver fund and a mortgage broker, said few people had taken up the option - but for the few who did, it could be critical.

"Canning it, when there's so much financial stress for so many people, is not the smartest thing, to my mind," he said. "Though effectively it is a loophole, for some people it could be the difference between still saving a bit, or pulling out of retirement savings entirely."

For John Flack, 53, mortgage diversion will provide significant assistance in paying his $230,000 mortgage on a home in Auckland's Mt Albert. Flack's partner David had a stroke last year, so the couple are now reliant on Flack's income as a chef at Meccano in Mechanics Bay.
So, the day before the Budget, he filed an application with Kiwibank to divert $50 of his fortnightly $100 Kiwisaver contribution to top up his mortgage payments.

"The Kiwisaver fund I'm in is performing so badly that I got a letter from them, saying they were basically going down the toilet," he said. "It's my money. Why should I put it into that fund, when I could be paying off the mortgage?" Flack put his application in just in time - but he was disappointed for others who, from tomorrow, will miss out.

The Inland Revenue Department has said that only 600 of the million Kiwisaver members had taken up the mortgage diversion - but that may be because most people did not realise it was an option.

Bruce Patten, senior mortgage adviser to Loan Market, said his company did not believe there were significant benefits to mortgage diversion, because some lenders chose not to support it. But the main reason for the lack of uptake was because Kiwisaver fund providers weren't advising home-owners that they could put some of the money into their mortgages.

However, Staples Rodway Tax director Matt Baker says the mortgage diversion scheme was flawed because there were too many variables involved for it to be beneficial.

It was a complicated "money-go-round", he said, so banks and Kiwisaver funds did not want the hassle of providing it.

It was of benefit only to people who earned more than $104,000, he said, because they could divert half their contribution to the mortgage and still claim the full tax savings tax credit from the balance.

"Basically it was a no-brainer to abolish it - far too much hassle for only a small percentage of people who would benefit,"