First Home Super Saver Scheme: Can It Save The 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).

Some might say “you just have to go without, buckle down and save” but is it really that simple?

As of 2021, wage growth is stuck at a low of 1.5% and the cost of living is increasing with power bills, health insurance and the cost of education surging over the last decade. 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.

For some perspective, recent modeling from CoreLogic of incomes and home prices revealed 99.9% of Sydney homes are unaffordable for a quarter of city residents as housing prices have outstripped wage growth for decades. Low-income workers, on the other hand, can only afford 17.6% of all housing stock in Australia.

This is leaving many first home buyers with low expectations about owning their home any time soon, in or outside of Sydney.

One saving grace for future homeowners is the First Home Super Saver Scheme (FHSS), a Government housing initiative to improve affordability for young people. However, there are some pros and cons to the scheme — in this article, we explore the intricacies of purchasing a new home in 2021 and whether the FHSS can actually help.

How long does it take to save a house deposit in NSW?

According to a recent analysis of first home buyers and their saving capacity in New South Wales, it was found it would take four years and five months to save for a 20% deposit outside of Sydney or three years and five months for an apartment.

For first home buyers in Sydney, it would take eight years and one month to save for a 20% deposit, making it the toughest housing market to jump into.

Paul Ryan, the economist for realestate.com.au, noted that it is becoming increasingly difficult for first home buyers to join the market at all:

“Since the onset of the COVID-19 pandemic, reduced mortgage interest rates have pushed housing prices higher. While this hasn’t necessarily increased repayment costs, it has dramatically increased the deposit required to enter the market for first home buyers,” Paul said.

“In some areas of Australia, it could take many years for a couple aged 25 to 34 earning median salaries and saving 20 percent of their take-home pay to save the required deposit to avoid paying lenders mortgage insurance.”

House prices have continued to soar over the past decade and while four years and five months is the average time needed to save for an NSW home, in reality, it is probably going to take longer with record-low wage increases.

What you need to know about the First Home Super Saver Scheme

In the 2017-2018 Federal Budget, housing affordability was one of the Government’s key focuses. The First Home Super Saver Scheme (FHSS) was introduced to allow Australians to save for their home deposit through superannuation.

As of the 1st of July 2017, Australians could make voluntary superannuation contributions of up to $15,000 a year and a maximum of $30,000 over more than one year for the purpose of purchasing their first home. To take advantage of this scheme, first home savers needed to arrange with their employer to salary sacrifice their super contributions.

From the 1st of July 2018, first home savers could apply to release their voluntary contributions and associated earnings to help purchase a new home, if:

• You are 18 years old or older
• You have never owned property in Australia (including investment properties, vacant land, commercial properties)
• You have not previously requested an FHSS release authority in relation to the scheme
• You either live in the premises you are buying or intend to as soon as you can
• You intend to live in the property for at least six months within the first 12 months of ownership.

Example: How does the scheme work for individuals?

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, on the other hand, saves using a deposit account. He earns the same as Max but uses his 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 FHSS compared to a standard deposit account.

*Assuming an estimated 5% deemed earning on FHSSS and 2.5% interest on a deposit account.

NSW Stamp Duty (SD) – Stamp duty exemption from July 2017

The NSW Government abolished stamp duty (effective from 1 July 2017) for first home buyers on existing and newly built homes – more specifically on purchases up to $650,000 and concessions for properties up to $800,000.

Previously, stamp duty exemptions were only available on new home builds up to $550,000. The stamp duty exemption was designed to help more first home buyers enter the market. At the time, NSW Premier Gladys Berejiklian said:

“This will provide a once-in-a-generation opportunity for first-home buyers to put their foot in the market.”

Using our example, if Max wanted to purchase a $650,000 property, under the stamp duty exemption scheme he would save up to $24,740.

How to First Home Super Saving Scheme works for couples

The FHSS may appeal most to those in codependent relationships i.e. couples saving together as a team as you get double the benefit so they can save for a house deposit.

For example, 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 FHSS alone may not be enough for a deposit, or you may want a bigger deposit to 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 FHSS 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 and need a hand with cash flow and budgeting to enter the property market.

If you would like to know more about how Elliot Watson Financial Planning can help you save a deposit for your first home, call 02 4038 1623 today

The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of the licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author. Elliot Watson Financial Planning Pty Ltd is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.