A super way to buy a home?

19 October 2017

Scott Quinn explains the first home super saver scheme and how it can help first home buyers get a foothold in the market.

My childhood throughout the 80s was spent growing up in Mascot just a stone throw away from Sydney Airport. Our family never owned our own home and as a consequence, we had lived in four different rental houses within the same street. This drove my need for stability and in my early 20s I went west of Sydney to purchase an affordable home.

Decades later and housing affordability is a bigger issue than ever. Like many parents, I often wonder how each of my four children will afford their first home. Some parents might also wonder when their children will finally leave home.

Home ownership: a particular hurdle for women

It’s a problem that’s even more critical for my daughters Holly-Marie and Tahlia-Rose. The latest Household, Income and Labour Dynamics in Australia Survey charts the home-ownership trends between 2002-14 for the younger demographic (persons aged 18 to 39). It recorded an unprecedented 13 per cent drop in home-ownership rates for women aged 18 to 39 over 12 years, from 38.5 per cent in 2002 to 25.5 per cent in 2014. (This compares with a 7.6 per cent drop in home-ownership rates for men from the same demographic over the same time period.)

While a low-interest-rate environment means many renters could afford the repayments, the biggest hurdle is the deposit. The cash flow of young adults makes it difficult to save as house prices continue to rise. Women are at an even greater disadvantage with lower average wages and time out of the workforce to look after children.

Analysis of the 2017-18 federal budget, in a report by the National Foundation for Australian Women, found that women:

  • earn 9.4 per cent less than men at graduation
  • earn $26,853 less than men on average
  • have a third less in retirement savings than their male counterparts
  • do 76 per cent of the work in the $345 billion unpaid-work economy.

ANZ’s Scott Quinn with his two daughters, who he hopes will be able to afford their own home one day.

How the first home super saver scheme can help

The answer for first home buyers could very well be the first home super saver scheme. Announced in this year’s federal budget (and still awaiting approval), it was designed to help someone save for their first home by allowing them to use concessionally taxed superannuation to build a deposit.

Voluntary contributions you make (up to certain limits) on or after July 1, 2017 plus an associated earnings amount can be released back to you from July 1, 2018 only for the purchase or construction of a first home.

A contract to purchase or construct a new home must be entered into within 12 months (or up to 24 months if an extension is granted) from the first amount released under the scheme.

To be eligible to release funds under the scheme, you must be at least 18 years old and have never held an interest in any ‘real property’ in Australia – this includes an investment property, commercial property and certain leases of land in Australia.

Eligibility for the scheme is an individual test. So if your partner owns property that won’t affect you. It’s also not a problem if you are purchasing a first home with someone (for example, joint tenants or tenants in common) that has held an interest in any Australian real property.

How much can you save?

Using the government’s online first home super saver scheme estimator you can enter your income and how much you’ll sacrifice before tax into your super in a year. The estimator tells you by how much your net pay will be affected, how much you’ll be able to save for a deposit.

It also compares outcomes of saving for a first home under the scheme relative to saving the same amount (less tax at personal tax rates) in a standard deposit account.

You can only voluntarily contribute $15,000 in any one financial year, up to $30,000 in total across all financial years.

For example, an individual has a taxable income of $100,000 and makes an annual super salary sacrifice of $15,000. This reduces their take home pay by $9240. And after two years they’ll have an estimated $24,417 available for a deposit under the scheme. This is $5711 more than if the savings occurred in a standard deposit account.

visual from the estimator showing this example

Is it a good option for first home buyers?

Given the tax concessions provided to super, the first home super saver scheme can be an effective way to help save for a deposit for a first home. For those looking to buy an investment property you would first need to occupy the home for at least six months in the first 12 months after you buy, before switching it over to an investment property.

Parents with excess disposable income can also help their children save for a deposit through the scheme by supplementing the cash flow of the child, allowing them to salary sacrifice, making personal tax-deductible super contributions or non-concessional contributions to super. These are all part of the scheme’s releasable contributions.

However, since contributions to super are preserved, it would be prudent to wait for legislation enacting the scheme to pass before making contributions. And, if it does pass soon, it’s worth considering making voluntary contributions during the 2017-18 tax year to maximise the associated earnings amount that can be released from super.

Next steps

Scott Quinn is a technical services manager at ANZ Wealth.