With the 2017 Federal Budget, the Australian government took some major steps towards helping first-time buyers to secure home loan.
Perhaps the most important of these measures was the introduction of the First Home Super Saver Scheme (FHSSS). This scheme allows you to use the funds you place into your superannuation (super) account towards the deposit for your home.
However, there are some conditions you need to keep in mind.
Can Buyers Use Super to Buy a House?
Though it can help towards buying a house, you can’t user super on its own to make the purchase.
It works like this. From the beginning of July 2017, you’ll be able to make voluntary non-concessional and concessional contributions from your super account to save for a deposit. Concessional contributions relate to those made before tax, whereas non-concessional relates to those made after tax.
From July 1st, 2018, you’ll be able to drawdown from these contributions at the marginal rate applying to your account. You’ll receive a tax offset of 30% to help with this.
Right now, you can’t drawdown from your current super account. Thus, you can’t currently use it to fund your deposit.
The FHSSS Drawbacks
The fact that you can’t drawdown from your super account right now isn’t the only drawback. There are two other major issues that you need to be aware of:
● The scheme offers a low return rate
● There’s a cap on the scheme
Let’s look at each drawback in more detail.
Low Return Rate
The scheme uses what’s referred to as a “deemed” rate to calculate how much of your earnings you can release from your super account. It bases this rate on the 90-day Bank Bill rate, to which it adds a further 3%.
This means the scheme may benefit high earners more than people on low incomes. When you consider the fact that the average house price in the Sydney metro area approaches $1 million, you can see where this becomes a problem. Such properties need at least a $100,000 deposit, which the FHSSS won’t allow you to save via your super due to the caps we’ll cover shortly.
Still, you may be able to use your super to cover the stamp duty attached to the property. It’s best to speak to a mortgage advisor to figure out how to best use your super when applying for a home loan.
We mentioned the cap previously, so let’s look at it in more detail.
The FHSSS allows you to contribute a maximum of $15,000 per year, up to a maximum contribution of $30,000. That means a couple who want to use the FHSSS can contribute $60,000 towards the cost of the house.
On top of that, you may have to deal with caps on the contributions you make from your accounts. All contributions come with tax strings attached, though the 30% offset may help with those.
As you can see from the $1 million example mentioned earlier, the maximum you can contribute using FHSSS won’t always cover the full deposit.
Again, this depends on your personal circumstances. Those looking to buy less expensive properties could use the FHSSS, but they would need to be high earners to do so. uno’s Home loan brokers can offer more advice.
Does That Mean I Still Need Genuine Savings?
Lenders look at both the funds you have available to complete and the amount of genuine savings you have available when looking at your deposit.
Usually, they look for genuine savings to make up 5% of the deposit for the home loan. Funds from your super do not count towards genuine savings because banks don’t consider your super as proof that you’re financially responsible. Thus, you need genuine savings to secure your deposit.
However, you can combine the funds from your genuine savings, the FHSSS, and the First Home Owners Grant to complete. Funds to complete means that the sum of this money covers stamp duty, the home’s purchase price, and any other fees attached to the home loan.
On rare occasions, a lender may change its policy on genuine savings if you rent a property.
Potential Benefits of Supers
The FHSSS can help you to buy your first home, but it won’t usually cover the entire deposit.
However, supers may help first-time buyers in other ways. Recently, the Australian Housing and Urban Research Institute (AHURI) has advocated the use of super funds in the creation of affordable housing projects.
The aim would be to lower house prices and supply more homes, thus boosting the Australian real estate sector. Such a scheme would create government-subsidised housing that is more accessible to first-time buyers.
What to do next
Pending the legislation of this announcement in early 2018, you can use your super to help you buy a new home if you’re a first-time buyer. To get started, check out the following resources:
This information is general in nature, and you should always seek professional advice when making financial decisions.