The First Home Super Saver Scheme: How Does it Work?
If you’re a first home buyer struggling to save for a house deposit, then you need to know about the First Home Super Saver scheme. Why? Because the red-hot property market in Brisbane is making life a lot harder for first home buyers.
From the COVID trough to the market peak in June 2022, property prices in Brisbane shot up by 42.7%! While this was followed by a minor decrease, prices are once again climbing, with the median house price in Brisbane increasing by 10.6% from January 2023 to January 2024. What effect is this having on first home buyers?
First Home Buyers Saving for a Deposit
For first home buyers trying to save a 20% deposit, the recent property market growth represents a substantial increase (to say the least!). Back in September 2019, the median house price in Brisbane was $675,000. As of January 2024, that figure was $875,991.
This increase means that a first home buyer would now need to save around $175,198 in order to have a 20% deposit for an average-priced home in Brisbane. That’s about $40,000 more than what they would have needed just 5 years ago.
With these figures in mind, it’s no wonder that a recent survey found 1 in 4 Australian first home buyers will now take 5-10 years to save a 20% deposit (and 1 in 10 will need 10+ years!). But fortunately, there is assistance available for first home buyers who are trying to boost their savings. One option is the First Home Buyer Super Saver scheme (FHSS).
Why Do We Need the First Home Buyer Super Saver Scheme?
When COVID-19 first started wreaking havoc on the Australian economy in early 2020, the government responded by announcing a series of assistance packages. One notable announcement was that Australians who had suffered economic loss could withdraw money from their superannuation.
Understandably, this generated a lot of interest among first home buyers. In addition to plans for paying off debt and managing household expenses, a lot of people were also asking, “Can I use my super for a house deposit?” At the time, the answer was (unfortunately), “No”.
However, while the COVID-19 early release of superannuation program could not be used for a house deposit, there is another option available to first home buyers. It’s called the First Home Super Saver scheme.
What Is the First Home Super Saver Scheme?
So, what is the First Home Super Saver scheme? Surprisingly, the scheme has actually been around for quite a while. First announced in the 2017-2018 Federal Budget, the goal of this scheme is to make it easier for first home buyers to enter the housing market.
Under the First Home Owner Super Saver scheme, eligible Australians can make added contributions to their preferred superannuation fund. These accumulated funds can then be withdrawn and used as a deposit to buy a home. This all sounds good in theory, but how does the First Home Super Saver scheme work?
Understanding the FHSS Scheme
If you’re a first home buyer who’s interested in the scheme, then you need to have a good understanding of exactly how the program works. This is because the First Home Buyer Super Saver scheme comes with specific eligibility criteria and strict rules that govern how much you can contribute to your super and how much you can withdraw. Doing thorough research before you start making contributions could save you a lot of frustration down the track.
What are the Eligibility Criteria for the Super Saver Scheme?
First and foremost, to benefit from the scheme, you need to meet the following criteria:
- You must be over 18 years old to withdraw from your super (although you can start making contributions before you turn 18).
- You need to be a genuine first home buyer. In other words, you can’t have owned any property in Australia before. This includes a residential home, investment property, vacant land, commercial property or a company title interest in land.
- You’ll need to move into the property as soon as possible after the sale is finalised and live there for at least 6 months (so you can’t use the scheme to buy an investment property that is then rented out to tenants).
- You must be an Australian citizen for tax purposes.
- You can’t have previously used the Super Saver scheme.
How Does the FHSS Scheme Work?
The rules of the First Home Buyer Super Saver scheme stipulate that any eligible participant can make voluntary super contributions totalling $15,000 per financial year (commencing from the 1st of July 2017). These voluntary contributions (plus any associated earnings) can then be withdrawn and used for a house deposit.
Originally, the amount that could be withdrawn was capped at $30,000 (plus earnings). However, in the 2021-2022 Federal Budget, the Government announced that this cap would be increased to $50,000 (plus earnings), starting from the 1st of July 2022.
Funds withdrawn from the scheme must be used to buy a new or existing house in Australia.
What Contributions Can Be Used for the First Home Owner Super Saver Scheme?
One very important detail to be aware of is that compulsory super contributions (the kind that your employer automatically makes on your behalf) cannot be withdrawn under the FHSS scheme. It also doesn’t allow you to withdraw added contributions that have been paid by your spouse.
Only the following voluntary contributions can be used as part of the First Home Owner Super Saver scheme:
- Before-tax salary sacrifice contributions that you’ve asked your employer to pay on your behalf.
- Personal super contributions that you’ve paid directly from your bank account (this includes both tax-deductible and non-tax-deductible contributions).
What Else Should I Know About the First Home Super Saver Scheme?
There are also a few more regulations surrounding the use of the Super Saver scheme. These include the following stipulations:
Residential Premise
The home that you plan to buy must be designated for use as a “residential premise”. This means you can’t use the money to buy a houseboat, a factory, a caravan or a block of land that you don’t intend to build a house on.
Limited Time to Buy
Once you’ve withdrawn funds from your super under the First Home Saver scheme, you have 12 months to sign a contract of sale. If you need more time, you can apply to the Australia Tax Office (ATO) for an extension, which will give you an additional 12 months (24 months in total).
Pay Back or Pay Tax
If, after 24 months, you still aren’t ready to sign a contract, you’ll either need to re-contribute the funds back to your super or pay a tax penalty (equal to 20% of the funds you withdrew).
Live In the Property
After you’ve purchased a property, you’ll need to live in that house for at least 6 months within the first 12 months after settlement.
Using The FHSS With First Home Buyer Scheme
The two schemes can be used together, but, when you put super into your bank account, it is added to your taxable income and that can affect the Federal Government’s sign off on the Notice Of Assessment limits – $125,000 for an individual and $200,000 for a couple.
Understanding these regulations and adhering to the set timeframes will help to ensure that you get the maximum benefit from your super contributions.
Is the First Home Super Saver Scheme Worth It?
In light of the above regulations, you might be wondering, “Is it worth using the First Home Super Saver scheme?” While it might seem complicated, the scheme does offer certain benefits that would be unavailable to first home buyers who were only using a traditional savings account, including:
- Reduced Tax: The First Home Super Saver scheme could reduce the amount of tax you’re required to pay. How? Well, if you make before-tax contributions to your super, you’ll still be charged tax once you withdraw the funds. However, you’ll only be charged your marginal tax rate, minus a 30% tax offset.
- Easier to Save: The First Home Owner Super Saver scheme can also be a good option for those who might struggle with sticking to a budget. Unlike a traditional savings account (where funds can easily be transferred in and out), funds deposited into your super will only be accessible once you’re ready to make your final withdrawal. This means you can’t dip into savings to fund a night out with friends or a spontaneous weekend away.
So, is the First Home Super Saver scheme worth it? This will ultimately depend on your specific financial situation and savings goals. That’s why it’s a good idea to talk to an experienced mortgage broker and consult with a tax professional before making a final decision.
What Are the Pros and Cons of the FHSS Scheme?
Choosing to participate in the scheme is a big financial decision that could come with long-term repercussions. So, it’s important to carefully evaluate all the relevant advantages and disadvantages before committing to the scheme:
What are the Advantages of Using the FHSS Scheme?
- The scheme doesn’t currently have a time limit on when you need to withdraw your added contributions. This allows you to customise your savings over several years.
- You don’t have to have a property in mind before you can apply for the funds to be released (making it easier for you to quickly put in an offer once you’ve found the right property).
- If you’re planning to buy your first home with another eligible first home buyer (such as a partner, friend or family member), then you could potentially double your savings through the scheme. This is because each eligible buyer can withdraw up to the maximum limit from their super.
- You could save on the amount of tax you have to pay each year by entering into a salary sacrifice plan with your employer. This, in turn, could allow you to increase how much money you’re saving.
What are the Disadvantages of Using the FHSS Scheme?
- You have to be a genuine first home buyer to benefit from the First Home Owner Super Saver scheme.
- There is a cap on the amount you can contribute each year ($15,000) and a limit on the total sum you can withdraw ($50,000 plus earnings). This means you may also need a separate savings account to supplement your superannuation savings.
- You can only apply to withdraw funds once under the scheme. This rule applies even if you change your mind about going through with a purchase, withdraw less than the maximum allowable amount, and unable to find a suitable property within the specified timeframe.
- You will be required to pay some tax on any funds you withdraw from your super under the scheme.
How To Apply for the First Home Super Saver Scheme
Once you’ve saved up your deposit and you’re ready to buy your first home, you’ll need to know how to apply for the First Home Super Saver scheme. This withdrawal process involves a total of 5 steps:
1. Find Out How Much You Can Withdraw
Apply for a ‘determination’ from the ATO to see how much money you’ll be able to withdraw. You can do this online through your MyGov account.
2. Make a Request
After receiving your official determination, you’ll then need to make an official request to the ATO for your savings to be released.
3. ATO Contacts Your Super Fund
Once this request has been approved, the ATO will contact your super fund and ask them to release your savings.
4. Funds Released to ATO
Your super fund will release your savings directly to the ATO, who will then take off the total tax owed.
5. Funds Released to You
Finally, the ATO will forward the remaining money directly to you.
Proposed Changes to the Super Saver Scheme
The 2021-2022 Federal Budget included an announcement from the Government about proposed changes to the Super Saver scheme. These changes are scheduled to come into effect from the 20th of September 2024 and are designed to improve flexibility for first home buyers who want to access their super.
These proposed changes include the following amendments:
- Individuals will be allowed to withdraw or amend their requests prior to receiving their funds.
- Applicants who previously withdrew their request will be eligible to re-apply in the future.
- The Commissioner will have the power to return released funds from the ATO back to the superannuation fund.
- Money that is returned from the ATO to a super fund will not count towards an individual’s contribution cap.
A Mortgage Broker Can Help You Buy Your First Home
Buying your first home can seem like a daunting task – that’s why it makes sense to get expert advice from a mortgage broker. A mortgage broker can answer all your questions, provide tailored home loan advice and help you to navigate through the entire mortgage application process.
To find out more about your eligibility for the First Home Super Saver scheme, contact the friendly team at North Brisbane Home Loans today.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
