The facts on the First Home Super Saver Scheme
It feels like every week there's a new reason why we can't afford to enter the property market. But the truth is it's not your smashed avocado and pricey morning coffee that's holding you back. As the property prices continue to climb, so do deposit amounts. And your savings targets get further and further away.
Fortunately, saving for a deposit on your first home just got a little easier with the Federal Government's new First Home Super Saver Scheme. From 1 July 2017, first home buyers can make voluntary contributions to their super fund, which can be withdrawn and used as part of a deposit after 1 July 2018.
The average price of houses are increasing, with Sydney's median price reportedly adbove $1 million. How long would it take you to save a 20% or even a 10% deposit? For some people it would probably take a couple of decades, at least. But with the government's new scheme, the Australian dream could be within reach.
What does the scheme involve?
You can now make voluntary contributions to your super fund up to $15,000 per year and $30,000 in total, which can be withdrawn and used as part of the deposit for you first house. These contributions will be taxed at a lower rate of 15%, as opposed to your marginal tax rate, which can be up to 45% depending on your income.
Many Australians will be able to salary sacrifice these contributions, which means the contribution will be made from your income pre-tax. According to the First Home Super Saver Scheme – Estimator, if you have a taxable income of $65,000 and salary sacrifice $5,000 annually, your take-home annual pay will only reduce by $3,200 and you'll have estimated $27,754 available for a deposit on your first home after six years.
If you put $5,000 of your income into a savings account with an interest rate of 3.05% per annum over 6 years, assuming you continue to make annual contributions of $5,000 to the account, your final balance will be $32,382.68, with $2,382.68 in interest on top of the $30,000 saved.
Alternatively, you could put your money into a term deposit. But remember, you'll be charged your usual marginal tax rate on any money you put into either a savings account or a term deposit. This means your annual take-home pay will be lower than if you choose to salary sacrifice these contributions. Check out the ATO website for more information.
Find what works for you
When it comes to saving for your first home, you have to find a solution that will work for you. You might appreciate the ability to salary sacrifice, as it takes away from the temptation to spend your income. Instead, the money goes directly into your super fund before you're paid, so you ability to save isn't dependent on your impulsive control.
Instead, you might prefer to have control over where your money goes once it's in your hands (or bank account). This gives you the option to deposit your savings into an account of your choosing.
If you're worried about never being able to buy the house you want, there are other ways of entering the property market. It's about being resourceful with your time and money. Make sure you compare all your options and compare which ones suit your financial situation best.
Source: budget.gov.au/2017-18/content/glossies/factsheets/html/HA_14.htm budget.gov.au/estimator/infochoice.com.aucalculators/savings-calculatordomain.com.au/news/sydney-median-house-price-hits-115-million-buying-becoming-out-of-the-question-20170419-gvmnp8/
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