Affordable housing measures passed while market continues to cool

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February 20, 2018

The sustained cooling of house price growth has seen first-home buyers flocking back to the market. Prices are no longer rising thanks to a number of factors including improved supply, and clampdowns on investor lending.

A significant outcome of overheated property prices has been that a crucial toe-hold in the property market has been elusive for young Australians. Attempted fixes such as revised first home owners’ grants, and calls for abolishing stamp duty for first-home buyers, have aimed to improve affordability in Australia’s most expensive housing markets.

But there has been recognition of the problem – by both sides of politics – with parliament recently passing legislation for the First Home Super Saver Scheme.

There are a few questions you might want to consider before taking up this initiative, namely: what is it, how does it work, and should this be on my radar?

From 1 July 2018, first-home buyers can withdraw voluntary superannuation contributions they have made since 1 July 2017 (up to $30,000 each, with individuals being able to contribute up to $15,000 a year within existing caps), plus the earnings, to help buy a home.

According to government calculations when the scheme was first flagged in last year’s budget, someone on a $60,000 annual salary who sacrificed $10,000 of their pre-tax income into their super each year over three years, would have $25,760 to put towards a house deposit after that time: $6240 more than they would have saved in a standard deposit account over the same period.

It makes sense, as you’ll likely save on tax, and the earnings on the savings in your super fund will typically be better than what you would generate with a bank deposit.

The scheme applies only to extra contributions you’ve made, and normal super contributions made by your employer won’t be accessible, ensuring home buyers can’t rob themselves of their future retirement.

For example, released amounts will be taxed at their marginal rate less 30% offset, and must be used for a property purchase within a twelve-month time frame. If you don’t actually enter into a contract to purchase property in 12 months, you still have to pay tax on the withdrawn amount.

With that in mind, first-home buyers should be pretty certain they intend to buy their first home before accessing money for it.

As with any important financial decision, it’s best to approach the scheme cautiously, tick all the boxes, and have a solid understanding of what’s involved.

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