The changes will mean that flexible mortgages will now qualify for the diversion facility, Finance Minister Michael Cullen and Revenue Minister Peter Dunne said.
An Order in Council has been made to widen the availability of the diversion facility.
“The mortgage diversion facility allows members to divert up to half of their contributions to repaying the mortgage on their home, so long as the mortgagee and the scheme provider agree. This recognises that reducing one’s mortgage can be an effective way of saving.
“Current regulations mean this facility is limited largely to table mortgages and the like. This restriction was put in because of concern that people with flexible mortgages would use the diverted contributions to repay part of their mortgage but then automatically borrow these contributions up to their credit limit.”
In discussions with the banking sector it had become clear that many mortgages were of a flexible nature which meant that the mortgage diversion facility had limited application. The majority of mortgages would now qualify provided diverted contributions reduced the home loan, the ministers said.
This did not prevent a bank agreeing to lend more against the home but it did prevent diverted contributions automatically being offset by an increased home loan.
“The amended regulations will ensure that the mortgage diversion facility works as intended and is accessible and is just one of the many incentives designed to make it easier, more attractive and more rewarding for people to save through KiwiSaver.”
Law firm Chapman Tripp recently drew attention to technical problems related to the mortgage diversion facilities for KiwiSaver, including restrictions on the type of mortgage for which the facility was available.
Partner Mike Woodbury said after the Government’s announcement that he expected the amendments to the regulations to resolve this problem although he had yet to see the wording.
