It seems the topic of housing affordability is still not waning, especially for first home buyers who want to enter the market. As a result from the recent federal budget announcements in June, the Government has developed initiatives to assist first home buyers secure their own piece of the property pie.
One such initiative is the ‘Super Saver Scheme’ which enables first home buyers to use their superannuation funds to boost their home deposit.
About the super saver scheme
According to the Federal Government fact sheet, from 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15 per cent, along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30 per cent offset and allowed from 1 July 2018.
For most people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Many employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contributions.
The realities
Daniel Peterson, CEO of iBuildNew, believes that while the ‘First Home Super Savers Scheme’ will provide some benefit to Australian FHBs, it needs to still be kept in perspective in terms of popularity among its target audience.
“As an incentive to help FHB’s save I really like the scheme, but am skeptical as to how effective this will be in terms of how many people will take this up.
I suspect FHB’s will not see the incentive as strong enough and have concerns their savings will be locked away until retirement if they can’t ultimately save enough, property prices keep rising, or their personal circumstances change, which are all legitimate concerns.
In theory however, if a FHB is on $80,000 pa and elects to salary sacrifice $1,000 per month into super for a deposit, within 2.5 years they will save the $30,000. Depending on their state, they should be eligible for the FHB grant of $10,000-$15,000 (let’s say $15,000), so they then have $45,000 in total savings. An average off-the-plan house and land package across Australia is $440,000 and if you assume you need 20% of the total amount (worst case) to secure a loan from the bank, the FHB still needs to save or access another $43,000.
This is in no way a slam dunk but may be possible if they already have some sort of additional savings or can access equity in their parent’s home, for example. However, with only just over 20% of FHB’s considering new home builds with most preferring established properties at much higher starting prices, this savings challenge is far more acute for most. Unfortunately, the numbers don’t lie, and while this initiative may create some savings discipline from the few that take it up, most FHB’s dream of owning their own home will still be out of reach.”
According to a recent study conducted by iBuildNew, 76 per cent of first home buyers can’t get into the property market because they can’t save the deposit or secure a loan.
Only 22% of FHBs are considering a new home build as their entry option to the property market, with 60 per cent preferring to buy established despite the significant price differential between the two options.
So while this won’t solve the problem, it may provide some level of support for first home buyers.
To find out more about the super saver scheme, read the Federal Government fact sheet.
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