What a Market Drop Does to Your House Deposit (Sequencing Risk)

Sequencing risk is the danger that a market downturn occurs at an unfortunate time – specifically, when you need to withdraw funds from your investments. For first-home buyers, this means your KiwiSaver balance could drop significantly just as you're about to use it for a house deposit. This risk is amplified when your investment horizon is short. Fundamentally, sequencing risk is the risk of withdrawing funds during a market downturn.

Imagine you've been diligently saving in your KiwiSaver Scheme for years, watching your balance grow. You're just months away from making an offer on a home in the New Zealand Property Market. Then, the market takes a sudden dip. Your carefully accumulated deposit could shrink, potentially putting your home-buying plans on hold. For example, during the Global Financial Crisis (GFC) or the COVID-19 market corrections, investors who needed to access funds quickly often realised significant losses.

Wealth Watch provides detailed return since inception data for every fund on the NZ Disclose Register. This allows you to see how funds have performed over their entire history, including through past market cycles. This historical perspective helps you understand potential volatility.

This isn't about predicting the future. It's about understanding the risk and planning for it. We believe in showing you the full picture, so you can make choices that align with your home-buying timeline, as further discussed in the "When to Withdraw Your KiwiSaver" section.

A market drop directly reduces your KiwiSaver balance because your funds are invested in various assets, like shares and bonds, which fluctuate with market conditions. When these assets lose value, so does your KiwiSaver account. This means your hard-earned savings for a house deposit can decrease rapidly. Your KiwiSaver Funds are invested in various assets. This reduced balance directly affects your house deposit size.

Let's say you have $80,000 in your KiwiSaver for a deposit. If the New Zealand Property Market or global markets experience a 10% downturn, your balance could instantly drop to $72,000. That's $8,000 less for your deposit, which can be a significant setback. Wealth Watch shows you each fund's risk indicator on a 1–7 scale, based on the FMA's (Financial Markets Authority) own measure. A higher number means higher potential returns, but also higher potential losses during a downturn.

Our platform also provides full holdings for each fund. You can see exactly what your fund is invested in, not just the top 10. This transparency helps you understand why your balance might be impacted by certain market movements. For example, a growth fund heavily invested in equities will feel a share market drop more acutely than a conservative fund, as its asset allocation is skewed towards higher-risk assets.

Understanding these direct impacts is crucial. Wealth Watch helps you monitor your fund's performance and risk profile, giving you the data you need to react proactively.

Government support schemes like the First-Home Grant and First Home Loan play a role in helping New Zealanders into their first homes, but their interaction with a market drop is important to understand. The First-Home Grant specifically, finished on 22 May 2024 and is no longer available. This is a common point of confusion, as older information still circulates. This grant provided financial assistance to eligible buyers.

Wealth Watch wants to be the accurate source for you. While the grant provided a median of about $5,000 towards a deposit, it was discontinued in Budget 2024. The rationale, as stated by the government in official announcements, was that as house prices rose, the fixed grant became less effective, shrinking from about 10% of a standard deposit in 2010 to around 4% by 2024. A market drop does not directly affect the grant eligibility criteria.

However, other support remains. The First Home Loan, underwritten by Kāinga Ora, is still available. This allows eligible buyers to get into a first home with a 5% deposit, instead of the standard 20% most banks require. The Kāinga Ora premium for this loan was even reduced from 1% to 0.5% of the loan value, as confirmed by Kāinga Ora's official website. A market drop does not directly affect the eligibility criteria for the First Home Loan. Crucially, the First Home Loan can supplement a reduced deposit. For example, if your KiwiSaver balance drops from $80,000 to $72,000, the First Home Loan could still allow you to proceed with a 5% deposit on a lower-priced home or bridge the gap.

These remaining options can be crucial if your KiwiSaver deposit has been affected by a market downturn. They provide alternative pathways to homeownership, separate from your KiwiSaver balance.

The timing of your KiwiSaver withdrawal for a house deposit is crucial, especially in a volatile market. Withdrawing your funds during a market downturn can lock in losses, meaning you sell your investments when their value is low. This directly reduces the amount you have available for your deposit. The timing of withdrawal is crucial for maximising your deposit. Withdrawing during a downturn locks in losses.

The Inland Revenue Department (IRD) sets the rules for KiwiSaver withdrawals. Your funds are paid directly to your solicitor on or before settlement day, not to you. This process means you need to plan ahead. IRD rules govern KiwiSaver withdrawals. If you're close to buying and the market drops, you might face a difficult decision: proceed with a smaller deposit, or delay your purchase, hoping the market recovers. Delaying allows your funds more time to potentially rebound. For instance, after the initial COVID-19 market dip in March 2020, markets recovered strongly within months.

Wealth Watch provides comprehensive data, including annual past performances and returns compared to the fund's own market index. This historical context helps you understand how your fund has behaved in different market conditions. While past performance is not a reliable indicator of future results, it offers valuable insight. We also host all official documents, like the PDS and fund updates, so you always have access to the latest information directly from the source, as required by the FMA.

Making an informed decision about when to withdraw means using all available data, including the detailed fund information Wealth Watch provides, to minimise the impact of market volatility on your home-buying dreams.