The end of financial year will soon be upon us. But once you get past…
Will It Help You Reach Your Great Australian Dream?
Saving for a house can feel like an overwhelming and unachievable dream. Young Australians looking to enter the housing market are faced with the task of saving at least a 10% house deposit or 20% if they want to avoid paying lenders mortgage insurance (LMI). Now, some might say ‘well you just have to go without and buckle down and save’…but is it really that simple? Wages growth is stuck at a record low of just 0.5% (ABS, May 2017) and the cost of living is increasing with power bills, health insurance and the cost of education surging over the last 10 years. Combined with high rental prices and low interest rates it is no wonder many young Australians no longer feel that owning a home is as attainable as the Australian dream once was.
How Long Does It Take To Save a House Deposit?
A recent analysis shows single first-time home buyers in NSW take 4.3 years to save a 10% deposit based on $570,000 median house price. This analysis assumes an average income of $1589 p/w, 20% of which is put towards savings and that house prices stay the same. However, house prices are rising which means that, whilst the research shows that 4.3 years is required to save a house deposit, it is probably going to take longer. Cost of living and soaring property prices are two of the biggest barriers to home ownership.
First Home Super Saver Scheme
The Government made housing affordability one of their key focuses in the recent federal budget announcing several measures to improve affordability. The First Home Super Saver Scheme (FHSSS) was one such measure. The scheme allows Australians to save a house deposit inside of their superannuation. As of 1 July, Australians can make voluntary superannuation contributions of up to $15,000 a year, and a maximum of $30,000 over more than one year, into their superannuation for the purpose of purchasing their first home. These are concessional contributions, meaning they are before tax. To take advantage of this scheme first home savers need to arrange with their employer to salary sacrifice their super contributions.
So How Does It Work?
Meet Max and Murray. Max earns $80,000 a year and wants to buy his first home. Using salary sacrifice, he puts $10,000 pre-tax income into his super account. This decreases to $8,500 after the contribution tax of 15% has been paid by the fund. After 3 years he can withdraw $26,751 of contributions and deemed earnings. The withdrawal is taxed at Max’s marginal tax rate less a 30% tax offset.
Murray saves using a deposit account. He earns the same as Max, but uses after tax income to save. He needs the same amount of money as Max to pay his bills, so he can only save $6,547 per year after tax to leave him with the same “spendable” income as Max.
The net result is that Max has saved approximately $6,637 more than Murray using the FHSSS compared to a standard deposit account.
*Assuming an estimated 5% deemed earning on FHSSS and 2.5% interest on deposit account.
NSW Stamp Duty (SD) – Recently Announced Stamp Duty Exemption
The NSW Government recently abolished stamp duty (effective from 1 July 2017) for first-home buyers on existing and new built homes, on purchases up to $650,000 and concessions for properties up to $800,000. Previously, exemptions were only available on new-builds up to $550,000. Premier Gladys Berejiklian said “this will provide a once in a generation opportunity for first-home buyers to put their foot in the market”. The stamp duty exemption should help more first home buyers enter the market.
Using our example, if Max wanted to purchase a $650,000 property, under the new stamp duty scheme he would save up to $24,740.
First Home Super Saving Scheme – Couples
The FHSSS may appeal most to those in co-dependant relationship i.e. couples saving together as a team, this is because you get double the benefit at which they can save for a house deposit.
Max and his partner Maree have the same income and both put away $10,000 into FHSSS each year. Together they can save $53,502 over 3 years – $13,270 more than if they had saved using standard deposit accounts.
What Else Can You Do?
The FHSSS alone may not be enough or simply you may want a bigger deposit will give you more purchasing power and/or a lower mortgage. First home buyers can look at other options to accelerate their savings in partnership with the FHSSS, such as setting up an investment account.
Elliot Watson Financial Planning offers a foundation package for new clients who are getting started with their careers, the property market and generally just trying to get ahead. This package helps clients with saving for a house deposit using the FHSSS and accelerated investment accounts as well as reviewing their superannuation and insurance needs.
If you would like to know more about how Elliot Watson Financial Planning can help you save a deposit for a home call 02 4038 1623.
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Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. The information (including taxation) in this article does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.