Nell Matzen - 30 Jun, 2021

Using the Super Saver Scheme to buy a home

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The 2021-2022 Budget announced in May, saw an expansion to the government’s First Homeowner Super Saver (FHSS) scheme. The often-misunderstood scheme was first introduced in the 2017-2018 Budget to help first homeowners get their foot on the property ladder.

How does the scheme work?

The scheme has drawn some criticism as it is widely believed that it simply allows first home buyers to withdraw on their super to use as a deposit for a house. However, it is a little more complicated than that.

Eligible first home buyers over the age of 18, are allowed to withdraw voluntary super contributions they’ve made since July 1st 2017 to contribute to a house deposit. The contributions are capped at $15,000 a year, are tax-free and will potentially accrue more interest than if the money were just sitting in a regular, high-interest savings account. 

The 2021 changes to the scheme mean that first home buyers can withdraw up to $50,000 of their voluntary contributions instead of the original $30,000.

Speaking with the Australian Financial Review, Canstar spokesperson Steve Mickenbecker said increasing the withdrawal amount is more realistic considering the current Australian property market.

“The previous $30,000 limit was always just a drop in the first home deposit bucket. The new limit won’t fill the bucket, but it is making a meaningful contribution,” he said.

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Voluntary super contributions include:

  1. Tax-deductible super contributions: Contributions made after-tax which you can claim a deduction on in your yearly tax return
  2. Salary sacrifice contributions: Contributions from your pre-tax income, which are paid into your super by your employer on top of your regular contributions
  3. After-tax contributions: Contributions from after-tax income from savings, investments, inheritance or the sale of an asset

Are Australians using the scheme?

The original version of the FHSS didn’t see the same enthusiastic uptake as other first homebuyer government incentives. Speaking with Savings.com.au, an Australia Taxation Office (ATO) spokesperson said the ATO received just 3,337 FHSS requests between 2018-2019. These numbers nearly doubled between 2019-2018. The total number of requests the ATO has received between July 1st 2018, and March 31st 2021, is 21,914.

“For the same period, July 1st 2018 to March 31st 2021, first home super saver scheme amounts were paid to 18,492 individuals totalling around $247 million,” they said.

Compared to other schemes like the First Home Owner’s Grant (FHOG), which has been used by as many as one-third of first homebuyers in some states, or the First Home Loan Deposit Scheme (FHLDS), taken up by one in eight first homebuyers.

First homebuyers blamed a clunky system on their lack of enthusiasm for the FHSS. In a 2018 Hack segment on the ABC, users claimed the system was sluggish, which caused them to miss out on properties in the fast-paced market.

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Pros and cons of the FHSS

Pros

  • Your voluntary contributions will potentially earn higher returns than a term deposit and savings account
  • There is potential to save thousands in tax
  • You have up to 12 months to purchase a property after the funds are withdrawn, which can be extended by another 12 months.
  • If you and your partner use the FHSS on the same property, it will amount to a substantial deposit.
  • The amount you can withdraw isn’t affected by changes in the market

Cons

  • The future of the scheme is not certain as it could potentially change if the federal government does
  • If you are hoping to avoid Lenders Mortgage Insurance, the maximum withdrawal amount of $50,000 is most likely not enough for a 20% deposit. The scheme is best used in conjunction with existing savings or with a partner.
  • As previously mentioned, the system can be slow – taking approximately 25 business days to receive funds, which could see your dream home slipping through your fingers.
  • Salary-sacrificing will mean less take-home pay each week
  • The funds must be received before signing a contract to buy or build, or you’ll be taxed 20% on the amount released.
  • Returns are restricted to the Shortfall Interest Charge (SIC) rate, which sits at 3.01% p.a. as of May 2021, which is low compared to the performance of many balanced super funds.

How does the scheme match up to other first homeowner government incentives?

Utilising other schemes like the FHOG could potentially result in a $10,000-$20,000 lump sum to add towards a deposit. Taking advantage of the FHLDS would mean not having to save a 20% deposit but would mean a larger amount borrowed and larger repayments.

Based on the average contributor, the FHSS may only add few thousand to your deposit after years of extra voluntary contributions. Although, the other schemes are limited to one person per household, whereas two people can use the FHSS to purchase a single property.

If you are willing to look past the slow fund release times, going the FHSS route is an excellent way to maximise your savings by benefiting from the SIC rate, which is higher than the average high-interest savings account.

What's my borrowing power if I earn $ per year?

When to use caution utilising the FHSS

Mozo’s banking expert Peter Marshall suggests that Australians keen to participate in the FHSS should think about their future finances before pulling the trigger.

“This scheme will mean you’re going to have less money available once you retire, but then there is the argument that if it helps you get a roof over your head that is more stable than renting, you’ll need less super anyway”. 

“Something that everyone buying a property for the first time should be aware of, particularly right now, is that interest rates can change. So while you might be able to squeeze in to qualify for a bank loan now, it pays to ask yourself if you would still be able to service the loan if interest rates are significantly higher in five years’ time”. 

“If you’re having to access super to get into the market, you should be extra careful about not borrowing too much,” he said.

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Words by Nell Matzen

Are you on the lookout to save more on your home loan? Contact eChoice for assistance sifting through your options. With access to 100s of mortgage products from over 25 lenders, eChoice has the resources to help you find potential savings.

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