How to use your super for a home loan deposit

First Home Super Saver Scheme - what is it?

In the 2017 federal budget, the Australian government introduced the First Home Super Saver Scheme to help housing affordability. The scheme allows eligible first home buyers to make voluntary super contributions up to $15,000 per year or a maximum of $30,000 total. From 1 July 2022, the total amount cap will increase from $30,000 to $50,000.

This means that you can make voluntary contributions to your superannuation fund, which you can later use as part of or the whole deposit for purchasing a property. You can only use the voluntary payments you make and any profit they make, not the guaranteed payments made by your employer. However, you’re able to access any voluntary super contributions you’ve made, subject to the caps, since 2017. These payments also have to remain under the current contribution caps for both concessional (pre-tax) and non-concessional (after-tax) contributions.

Am I eligible? 

Eligibility requirements for the First Home Super Saver Scheme are set by the Australian Tax Office (ATO), and it’s best to clarify with them directly. There are some general eligibility requirements that you need to meet:

• Must be 18 years or older.
• You have never owned property in Australia before, including investment property, vacant land or similar.
• Have never requested the release of your super for the purchase of a property before.
• You are using super to buy a house to live in rather than as an investment.

You will need to apply for and receive an FHSS determination from the ATO before signing a contract of sale for a property. Each individual is assessed independently, which means that a couple could double their deposit funds using the FHSSS. If one person has previously owned property, it won’t prevent the other from using the scheme.

Financial hardship provision

One exception to the eligibility requirement that you can’t have owned property previously is if you’ve suffered financial hardship that resulted in you losing your property. The circumstances where the financial hardship provision may apply includes: 

• Bankruptcy.
• Divorce, separation from a de facto pattern or a relationship breakdown.
• Loss of employment.
• Illness.
• Impacted by a natural disaster.
• Eligible for early access to superannuation.

You’ll need to apply for the financial hardship provision via the ATO and it’s best to do this before you start saving to make sure you’re eligible. 

In order to qualify you will still need to meet the below criteria at the time of lodging your First Home Super Saver Scheme determination form:

• Must not have acquired an interest in any property since your financial hardship.
• Must be over the age of 18 years old.
• Must not have previously used the FHSSS to release funds.
  

Check the ATO website for further information on the eligibility criteria.

Will it help me save for a deposit faster?

Using super for a house deposit is one way to get the cash you need for a deposit faster than using a regular savings account. Firstly, the super contributions you’re allowed to use via the First Home Super Saver Scheme are taxed at a lower rate. Secondly, the deemed interest rate that gets applied to your FHSSS contributions is higher than the current interest rates on most standard savings accounts.

What about the difference between low and high-income earners?

Using the FHSSS involves making either concessional (pre-tax) or non-concessional (after-tax) voluntary super contributions. If you’re making concessional contributions these will be taxed at different rates if you’re a low or high-income earner.

The tax rate for withdrawing these contributions from your super fund via the FHSSS is taxed at a fixed 15% tax rate. 

How do I access my contributions?

The ATO is in charge of the FHSSS and you can check your up to date balance with them at any time. Before you apply directly to them for the release of your funds, they will give you an FHSSS determination, which advises you of the maximum amount your superannuation provider will release to you. It’s important you’ll have the FHSSS determination from the ATO before signing any contract of sale or applying for the release of funds.

Through myGov you can request up to the maximum amount that’s listed on your FHSSS determination. It can take the ATO and your superannuation fund between 15 to 25 business days to approve and process your request so it’s important you don’t delay your application. 

Once the funds are released, you have 12 months to purchase the property. If your situation changes and you choose not to buy the property, the ATO may approve a 12 months extension. Alternatively, you can reinvest the funds into your super.

Pros and cons of the First Home Super Saver Scheme

Pros of the First Home Super Saver Scheme

• You may save more money using the scheme than a standard savings account.
• Contributions can be salary sacrificed, which can assist your ability to save.
• Multiple borrowers can access the scheme separately, which means if you’re purchasing with a partner, the amount you can save is doubled.

Cons of the First Home Super Saver Scheme

• Contributions are capped, which limits the amount you can save.  
• It’s subject to change depending on the government budgetary decisions.
• It can be a slow process to release the funds, with an average time frame being about 24 days.

Do I need any savings of my own?

Lenders might still require 5% of the deposit in genuine savings to approve your home loan application. The lender will then look at this amount combined with any funds you may have as part of the FHSSS and the first home owners grant as funds to complete, or funds that will support your purchase. All of these funds will need to be enough to cover your deposit, stamp duty, mortgage fees and legal costs.

Can I use my first home super savings to buy vacant land?

You can use the First Home Super Saver Scheme to buy vacant land only if you intend to build a home to live in. You’ll need to enter into a construction contract to build on the land within 12 months of withdrawing the funds and intend to live in the property once it’s built.

With a better understanding of how the First Home Super Scheme can help support you in purchasing your first home, you’re ready to begin your purchasing journey. If you want to know your home loan options, speak to one of Yard’s specialists today.