How Market Volatility Can Hurt First Home Buyers Using KiwiSaver
For many first home buyers in New Zealand, KiwiSaver offers a crucial helping hand in saving for that all-important deposit. But while it can be an excellent tool, there’s an often-overlooked risk that can derail your plans at the worst possible moment: market volatility.
What is Market Volatility?
Market volatility refers to how much and how quickly the value of investments goes up and down. When financial markets experience large and unpredictable price swings over a short period, that’s volatility in action. Volatility is a normal part of investing — but when you're about to withdraw funds for a home deposit, it can be devastating.
For example, a Balanced or Growth KiwiSaver fund might see strong returns over the long term, but in the short term it’s subject to sudden drops in value due to market conditions. Imagine your deposit shrinking by thousands of dollars just before you're about to apply for pre-approval or settle on a home. Unfortunately, this has happened to many buyers.
Why First Home Buyers Need to Be Cautious
KiwiSaver is often one of the biggest assets a first home buyer has, and it usually forms the bulk of their deposit. If you're planning to use those funds within the next 3–6 months, your investment timeframe is short-term. In this context, a market downturn can be more than just frustrating — it can cause your house deposit to fall below required thresholds, derail a mortgage pre-approval, or even lead to contract cancellations.
The Conservative Fund Strategy
If you’re within 6–12 months of buying your first home, most financial advisers recommend moving your KiwiSaver balance into a Conservative Fund. Here’s why:
Lower Risk: Conservative funds invest in more stable assets, such as cash and bonds, with less exposure to shares and property. This makes them less susceptible to major market fluctuations.
Preservation of Capital: While these funds won’t grow as fast, they’re designed to hold value — making them ideal when you can’t afford sudden dips.
Greater Certainty: A more stable fund gives you clarity and peace of mind when planning your mortgage and negotiating with lenders.
Real-Life Example
Let’s say you have $40,000 in KiwiSaver and you're in a Growth Fund. A sudden 10% market dip (which isn’t uncommon) could wipe out $4,000 of your deposit. If you're relying on that $40,000 to make up a 10% deposit on a $400,000 home, you could fall short and risk losing your dream home.
Had you moved into a Conservative Fund 6–12 months earlier, that drop might have only been 1–2%, or $400–$800 — much easier to manage.
When to Consider the Switch
6–12 Months Before Buying: This is the critical window. If you’re seriously shopping for homes or preparing for mortgage pre-approval, it’s time to review your KiwiSaver risk level.
After Talking to Your Provider or Adviser: Consult with your KiwiSaver provider or a financial adviser before making changes to ensure they are appropriate for your personal circumstances.
Other Tips for KiwiSaver First Home Buyers
Apply for a KiwiSaver Withdrawal Early: As soon as you have a signed a Sale and Purchase Agreement, you’ll need to apply for your withdrawal. Don’t leave it until the last minute.
Check Your Eligibility: You must have contributed to KiwiSaver for at least three years to qualify for a first-home withdrawal.
Consider Increasing Your Contibutions: Even a small increase in your regular contributions can make a big difference over time. If you're able to, consider voluntarily topping up your KiwiSaver to speed up your deposit growth.
Don’t Let a Market Dip Ruin Your Deposit
KiwiSaver is a fantastic tool for getting onto the property ladder, but timing is everything. If you’re planning to use your KiwiSaver as a deposit, make sure it’s protected from short-term market swings by shifting into a Conservative Fund at the right time.
Don’t let market volatility rob you of your homeownership dream. A small tweak to your investment strategy today could protect your future tomorrow.
DISCLAIMER: This article is for informational purposes only and is not intended as financial advice. We recommend speaking with a registered financial adviser or your KiwiSaver provider to discuss your individual circumstances before making changes to your fund selection.
