The national government and state governments alike are taking steps to make it easier for new homeowners to enter the housing market.
One of the ways the national government is making home ownership accessible is by allowing workers to access their super funds to pay for a deposit on their first house.
There are a few things to note before making your decision, however. Ahead, we’ll take a look at seven things you should know before using super to buy first home.
The First Home Super Save Scheme
The government introduced the First Home Super Save Scheme (FHSS) in July of 2017 as a way to make affording a home easier for many Australians.
This scheme allows Australian workers to contribute a maximum of $15,000 in voluntary contributions to their superannuation each year, and have that amount apply to the FHSS.
The maximum amount you can contribute to your super under the FHSS scheme is $30,000 across all years.
Starting on 1 July 2018, you can now withdraw your eligible funds and use them as a deposit for your first home.
Saving Money Faster
The government estimates that using super to buy first home can result in a boost of down payment by at least 30% when compared to traditional savings.
The higher rate of earnings and concessional tax treatment leads to this boost in savings. While this 30% is not across the board, the FHSS scheme is having the desired effect of allowing Australians to enter the housing market before they would otherwise be able to.
Eligibility: You Can Only Apply Once
The government only allows you to apply for the release of your funds once, so it’s important to understand the eligibility criteria. Fortunately, there aren’t too many restrictions on applying for release.
First, you have to be at least 18 years old. You can start contributing to your super earlier than 18, but can only withdraw once you are of legal age.
Secondly, this has to be your first property purchase. If you have owned investment property, commercial property, vacant land, or any other type of property you won’t be eligible for the FHSS scheme.
Lastly, this has to be the first time you have applied for FHSS release.
Combining Eligible Funds
If you have a partner, friend, or relative who has also been making contributions to their super, you can pool your investment and purchase a house together.
It’s also essential to note that the government assesses eligibility on an individual basis. This means that if your partner, friend, or relative has used their FHSS funds before, it will not stop you from requesting a release of yours.
Government Grants and Concessions
The FHSS scheme is separate from all other grants and concessions your state government may offer. For instance, all states offer first-time buyers a grant for purchasing a new or existing property.
Additionally, most states offer stamp duty exemptions or concessions for first-time buyers, except South Australia, as seen below.
|State/Territory||First-Time Home Buyer Grant?||Stamp Duty Concession?|
The government bases both grants and concessions on the property value of your potential home. Expensive homes won’t receive as much – if any – savings or grant money as starter homes will.
You must first meet the specific eligibility requirements your state puts forth on these grants and concessions. Make sure you know your situation and don’t miss out on any opportunities to save.
You should know about your state’s concessions, grants, and eligibility criteria before deciding to use your super on your first home. These additional funds might mean you won’t have to withdraw funds from your super.
Using Your Funds
The government requires that you use the funds you’ve removed from your super within 12 months of their release. If you don’t live on the property yet, you must enter into a contract that shows intent to buy or build a home within the year.
The property you purchase must also be clearly intended for residential use. You can use your funds to build a home on a vacant property, but need to enter into a building contract within 12 months of receiving your funds.
If you fail to use the money you took from your super under the FHSS scheme, you have the following options:
- Apply for an extension, with the maximum time being another 12 months.
- Recontribute the funds to your super (minus any taxes you paid)
- Keep your funds and face the FHSS tax. The tax will be a flat 20% of your assessable FHSS released amount.
Not Everyone Thinks It’s a Good Idea
Multiple Superannuation organisations were against this policy change when the government proposed it. The Association of Superannuation Funds of Australia (ASFA) likened the policy to taking money out of one pocket and putting it in the other.
The ASFA and others claim that taking money out of your super and using it for a down payment will put your retirement funds in jeopardy. It’s important to consider this possibility when deciding whether or not you want to take advantage of the FHSS scheme.
Of course, home ownership means lower cost when you’re retired. Those who rent and rely solely on their super to get by often have a more difficult road when they retire.
The decision of whether or not to use the FHSS scheme to buy your first house is ultimately up to you and your partner. You will be able to save more money for a deposit and enter the market faster, but might be putting your long-term financial security in jeopardy.