Saving for a house deposit is often the first and most challenging part of buying your first home. There are numerous tips and resources to help you save for a new home but with the increasing value of property and rising cost of living it often feels like an enormous task.
In an effort to reduce pressure on housing affordability the parliament passed measures in December 2017, that aim to assist aspiring home owners save for a house deposit by allowing them to contribute extra funds to their superannuation.
While support for first home buyers is always welcome the strength of the scheme has been questioned and suggested that it will not be the difference between affording and not affording your first home.
First Home Super Saving Scheme
Under the First Home Super Saver Scheme (FHSSS), first home buyers can contribute an additional $30,000 to their super fund which they can withdraw from July 2018 in order to buy a property. Voluntary contributions can be made by concessional (before tax) and non-concessional (after tax) contributions up to a maximum of $15,000 per year.
If you are a savvy first home buyer you can sign up to the scheme through the Australia Tax Office and begin salary sacrificing additional funds on top of your compulsory 9.5% contributions but it is important to note that the compulsory contributions your employer makes will not count towards the scheme. Couples saving for a deposit can both utilise the scheme, doubling their maximum savings to a total of $60,000 over two years.
In order to withdraw the funds you will need to apply to the ATO and use the funds within 12 months to purchase a property. The funds you withdraw will be taxed at 30% less than your marginal tax rate.
Many commentators and industry experts suggest that it will not have a huge impact, as an average wage earner will only end up a couple of thousand dollars better off than if they were to store the money in a saving account. The measure is estimated to have a cost of $250 million to Australia taxpayers.
As part of the Governments 2017 - 2018 Budget, an FHSSS Estimator and FHSSS Factsheet 1.4 were provided. The factsheet shares the following scenario:
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset. After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit.
Are there better options for you to purchase that first home sooner?
The simple answer is ‘YES’.
Waiting 1 – 2 years to access your savings under the scheme in the midst of rising property prices will amount to small potatoes when it comes to having a deposit for your first home.
A guarantor loan is still the most popular way to get into the property market but is often met with some hesitation when you consider being tied to your guarantor for 30 years and likewise for the guarantor using their property as security for the term of your loan.
Another way many young Australians are getting onto the property ladder is a loan with a limited guarantee. A limited guarantee enables the guarantor to ONLY guarantee the amount the first home buyer needs for a deposit or enough to avoid lenders mortgage insurance1.
For the guarantor it means less risk as they would not have to secure their entire loan against your property. Also, the way the loan is structured means the guaranteed portion of the loan is paid down first releasing the guarantor from the loan sooner.
The Family Head Start Guarantee from Regional Australia Bank features a limited guarantee and is available on a range of different home loans. Our home loan specialists will work with you and your guarantor to structure the loan in a way that suits both your conditions and lifestyles.
To find out more about and speak with one of our dedicated Home Loan Specialist enquire here.
1. Terms, conditions, fees, charges and normal lending criteria apply