The First Home Super Saver Scheme exists to help first-home buyers. Amanda Vanelderen asks, should they use it?
- The super saver scheme can be an effective strategy for first-home buyers to save a deposit.
- The lower tax environment of super can help boost savings.
- There’s some disagreement over the scheme’s potential impact.
Want to buy a house and know you could afford the mortgage repayments, but can’t seem to get the deposit together? The First Home Super Saver Scheme may give you a helping hand.
Announced in the 2017-18 federal budget, it was legislated in December 2017. Through the scheme, an individual can save up to $30,000 in total (a maximum to $15,000 each year) by making voluntary concessional (before-tax) and non-concessional (after-tax) contributions into their superannuation to use as a deposit (super tends to be a more favourable tax environment to save money in).
The government estimates that it will accelerate first-home buyers’ savings by at least 30 per cent.
Why do first-home buyers need help?
“It’s definitely possible for first-home buyers to get into the market, but according to a number of metrics it’s very difficult compared to what’s been the case historically,” says ANZ Senior Economist, Daniel Gradwell.
“If we look at how long it would take a person on the average wage to save a 20 per cent deposit, that’s at record-high levels. At the national level, it’s taking about eight years and in New South Wales, it’s about 10 years.”
To put that in context, the average total household income is about $120,000 nationally and $137,000 in Sydney. Assuming a saving of 15 per cent, a Sydney-based individual or couple would need to be saving about $1,700 a month for 10 years to achieve a 20 per cent down payment on a $1.042 million home (the median price for a home in Sydney, based on Residex’s March 2016 quarter price).
Why was the scheme introduced?
The government introduced a range of measures to put the great Australian dream of home ownership back in reach in last year’s budget.
If a generation is locked out of the housing market altogether, or getting into the market later because it’s taken so long to save a deposit, more people will be retiring with debt and possibly living in aged poverty.
Can I use my super to buy a house now?
Withdrawals can be made from 1 July 2018. But, there are a few conditions:
- You can only use voluntary contributions you’ve made since 1 July 2017, not the compulsory super paid by your employer.
- It’s for a first-home deposit only, so if you want your first property purchase to be an investment property, you’ll have to live in it for at least six months within the first 12 months after you buy, before switching it over to be an investment property.
Basically, using your super in this way is a type of savings account with tax concessions. While individuals can contribute up to $30,000 in total, couples can pool their savings for a single deposit, giving them up to $60,000. When you withdraw it for your first-home deposit (and the interest it’s made), this is taxed at a concessional rate.
How much difference can it make?
The scheme will be managed by the Australian Taxation Office, and it will decide how much you’re eligible to withdraw.
Use the government’s First Home Super Saver Scheme estimator to see for yourself how it compares to saving in a standard savings account. You can enter your income and how much you’ll sacrifice before tax into your super in a year. The estimator tells you by how much your net pay will be affected and how much you’ll be able to save for a deposit.
For example, if someone’s taxable income is $100,000, the estimator shows that making the maximum contribution of $15,000 will decrease their take home pay by $9,420 a year. After two years, they’ll have an estimated $24,417 available to withdraw for their deposit, $5,711 more than from a standard savings account.
Sydney’s rising property prices has made it hard for first-home buyers to get a foothold.
What if I change my mind?
Voluntary contributions can be withdrawn to build or buy a home, nothing else. So, if your plans change, and you decide not to buy a house, you won’t be able to withdraw the money for another purpose. But money invested in super isn’t wasted as it will boost your overall super balance.
Will it mean I have less money in retirement?
If you weren’t likely to make extra contributions anyway, it won’t impact your super balance. But using the scheme to get your deposit together may mean you gain an asset (your home) a little more easily than you otherwise would. This will be of huge benefit as you reach retirement.
Is the First Home Super Saver Scheme a good idea?
There’s disagreement on the impact the scheme could have. While the Committee for Economic Development of Australia sees it as key to improving housing affordability and prevent poverty in older Australians, the Association of Superannuation Funds of Australia (ASFA) isn’t so sure. The association is concerned it will drive up house prices and lead to lower retirement incomes.
So the jury is currently out on whether the scheme is a good idea.
So, should I use the scheme to help save my deposit?
It can work for you if:
- the ‘hands-off’ nature of super will help you save
- you’re saving for a deposit anyway and want to make the most of the tax concession
- the additional savings means you can save a larger deposit and avoid lenders’ mortgage insurance, which can add up to tens of thousands of dollars to the cost of buying a home.
It might not be the best idea if:
- you already have a deposit saved
- you can fund your deposit in another way (such as your parents acting as guarantors).
Work out how much it could mean for you
An extra $5,000 to $10,000 over a year or two could mean all the difference to getting on the property ladder.
If you decide to do it, try to keep up the good habit of extra super contributions after you buy your home. It’s a great way to boost that balance, and you can get advice on how to make the most of it at tax time.
In the future, you might be glad you made the effort.
How to make a voluntary contribution with ANZ Smart Choice Super
ANZ Smart Choice Super customers can make a contribution via BPAY.
Biller Code – 169060
Reference Code – member number (this is a combination of your ANZ Smart Choice Super BSB and account number)
The information contained in this document is general in nature only and does not constitute tax advice. We recommend that you seek independent tax advice specific to your individual circumstances from a tax specialist or registered tax agent.