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Update: From 1 July 2017, first home buyers will be able to save for a deposit by salary sacrificing or making after-tax contributions into their super saver account. Despite this, a guarantor loan can allow you to get into the property market sooner – click here to learn more.

In the 2017 Federal Budget, the Government introduced wide-ranging policies to level the playing field and help first home buyers (FHBs) get into the property market.

With the First Home Super Saver Scheme, FHBs can make contributions to their superannuation account to later use as their deposit.

Essentially, you’re using super to buy a house but the problem is that these contributions are capped and don’t go far enough as a true no deposit solution.


Can I use super to buy a house?

The short answer is no because you can’t drawdown from your current super balance as it stands now.

So how does it work?

From 1 July 2017, first home buyers will be able to make voluntary concessional (before tax) and non-concessional (after-tax) super contributions in order to save for a deposit.

You can start drawing down on these contributions from 1 July 2018 at your marginal rate (including the Medicare levy) minus a 30% tax offset.


The drawbacks of the super saver account

Contributions are capped

The so-called First Home Super Saver Scheme follows on from the First Home Savers Account introduced under the Rudd Government, which was then later abolished in 2015.

This new scheme sounds good on paper but the fact is that it doesn’t allow you to save a big enough deposit.

As per the regulations, you can only contribute a maximum of $15,000 a year and a total of $30,000 all up.

Even if you were purchasing a property with a co-borrower (your spouse), you’d only be able to save as much as $60,000.

In addition, your contributions count towards concessional and non-concessional contribution caps and you would still face tax on your withdrawal (albeit with a 30% offset).

There’s another reason why the scheme doesn’t go far enough.

The rate of return is low

The amount of earnings that can be released will be calculated using a “deemed” rate of return.

This rate is based on the 90-day Bank Bill rate plus three percentage points (as per the Shortfall Interest Charge).

With median house prices upwards of $1 million in Sydney and Melbourne metro, you need more than $100,000 as a deposit to get into a property.

Then there are the other costs associated with the purchase.

With the modest deemed rate of return, this scheme will help you fund the cost of stamp duty, if you’re lucky.

On top of that, the Australian Prudential Regulation Authority (APRA) has been pushing banks to be more conservative with their lending policies.

Most banks will no longer add Lenders Mortgage Insurance (LMI) on top of a 95% LVR (Loan to Value Ratio).

For a $1,000,000 property with a 95% loan, the LMI premium alone is $45,000.

Ultimately, the tax benefits of the super saver account predominantly benefit high income earners who are already in a better position to save a deposit than low income earners.


Case study of how the super saver account will work

Craig earns $80,000 a year and wants to buy his first property.

Using salary sacrifice, he contributes $10,000 of pre-tax income into his superannuation account

This increases his balance by $8,500 after the contributions tax has been paid by his fund.

After three years of contributions, he’s able to withdraw $27,380 of contributions including “deemed” earnings on those contributions.

His withdrawal is taxed at his marginal rate (including Medicare levy) less a 30 per cent offset.

After paying a $1,620 withdrawal tax fee, he has $25,760 that he can use for his deposit.

Craig has saved around $6,240 more for a deposit than if he’d saved a deposit in a standard deposit account.

Disclaimer: Superannuation and tax is complex so we recommend that you speak to your accountant or financial adviser when running through these figures. Marginal tax rates can change.


Do I need any savings of my own?

When a bank considers your deposit to buy a home as part of your loan application, they look at your funds to complete and your genuine savings.

Having enough funds to complete means your deposit, super withdrawal and First Home Owners Grant (if applicable) is enough to cover the purchase price, stamp duty, mortgage fees and legal costs.

Ultimately, you need more than 5% of your deposit in genuine savings to buy a home.

Unfortunately, funds from your super fund won’t count as genuine savings since a portion of your salary is normally applied to superannuation each pay.

It’s not a good indiciation that you’re financially responsible.

The good news is that some lenders will make an exception to their genuine savings policy if you’re renting.

Others have no genuine savings requirement at all!


You can buy an investment property using your SMSF!

If you have a significant amount of money in super account, say $200,000 or more, then you can buy an investment property in your self-managed super fund (SMSF).


There are more discussions on the benefits of super

Apart from using your own superannuation to buy your first home, Australia’s multi-trillion dollar super pot may help in other ways.

The Australian Housing and Urban Research Institute (AHURI) has pushed for a government department that would borrow money from Australian super funds and institutional investors and lend this money to fund affordable housing projects.

AHURI said this federal department would essentially be a “bond aggregator”.

This could help tackle the issue of undersupply in the Australian real estate market and hopefully cool down house prices.

First-time buyers trying to crack the market while renting could instead move into cheaper government-subsidised apartments, making it easier to save a deposit faster.


Apply for a home loan

Using super to buy a house has not passed the Parliament.

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Still have questions? Feel free to comment below and we’ll get back to you as soon as possible.

  • Sujan

    Where can I find more information about this legislation? Is there a government website or similar?

  • Hi Sujan, you can find more info about this on the Parliament of Australia’s official site.

  • Murray

    Can I get a home loan based on my super funds since I don’t have much savings of my own.

  • Hi Murray,

    Super funds can only be used to buy investment properties not the owner occupied property. You could discuss with a mortgage broker regarding your situation further.

  • Soward

    My parents already have a home loan of their own so I’m not sure if they can help :(

  • Hey Soward,

    That’s okay. As long as they have sufficient equity, some of our lenders can still secure a guarantee on their property using a second mortgage. You can use our guarantor loan calculator to work out if your guarantor has enough equity in their property:
    https://www.homeloanexperts.com.au/mortgage-calculators/guarantor-loan-calculator/

  • Baker

    So we can’t buy property using our SMSF?

  • You can’t use your SMSF as a home loan deposit to buy a property to live in but you can use your SMSF to buy an investment property. Please check out the SMSF loans page for more info:
    https://www.homeloanexperts.com.au/smsf-loans/

  • jason

    I would like to know how much then can I borrow using my SMSF to buy an investment property. Do you have a calculator for this?

  • Hey Jason,

    Yes, you can find out how much you can borrow in your SMSF using the SMSF borrowing power calculator. Instructions and additional info are on the page itself:
    https://www.homeloanexperts.com.au/smsf-loans/smsf-borrowing-power/

  • ER

    Will the information in this section be updated following the announcement regarding superannuation/first home buyers made in the May Budget?

  • Hi ER
    Yes we’re working on this now. It’s likely that people won’t be able to withdraw super until July 2018 so the focus for now should be on making additional payments to super from July 2017.

  • Ruwanthika Badanasinghe

    If I received super in a divorce settlement, Can I use it as a home loan deposit?

  • If you can access the super then yes, but lenders will restrict amount from super. If you’re close to retirement then it should be fine. If not then lenders may want at least 20% to remain at settlement with the purpose being investment.

  • Jarett Mones

    If I move back to America can I use the super saved (up to 30k), ie from July 2017 towards my first home there? I have US and Australian citizenship.
    Thanks

  • Hi Jarett,
    You should be able to do that but note that you can only start drawing down on your super contributions from July 2018. Please make sure you discuss this and get clarification from a professional financial adviser who knows and understands Australian as well as American super as well as mortgage policy.

  • ange

    hi, i’ve been contributing to my superfund through salary sacrifice for over 5 years now. Would that help contribute to the deposit, or will i only be able to use my future contributions from 1 july? thanks, ange

  • JD

    Is it possible to utilise the Superannuation Saver Scheme if we’re not first home buyers but we don’t own a house (currently renting) at the moment?

  • As of now, no it can’t be used as a deposit and just to service the loan. So you may only use future contributions, however, we can’t be sure about any future changes.

  • Hi JD,
    It’s unlikely that you can use the Superannuation Saver Scheme if you’re not a first home buyer even if you don’t own a house at the moment. However, it’s important to add that the super saver account still needs to pass the Senate – it’s only just been announced in the Federal Budget 2017. If it does pass the Senate, the earliest this saver option will be available is 1 July 2017. In the meantime, guarantor loans are available right now.

  • Milo

    Hi, the First Home Super Saver Scheme is not too bad I think though it could’ve been much better. If I start saving through it in a couple of months, will it be considered as genuine savings?

  • Hey Milo
    Under the First Home Super Saver Scheme, salary sacrificing would be acceptable because you’re essentially making regular contributions from your pay. Lump sum deposits as non-concessional contributions (after-tax) may also be acceptable. This is because you can only access your super saver account after 1 July 2018. So as long as your funds are held for at least 3 months, it should be considered as genuine savings. You can learn more about the first home super saver scheme here:
    https://www.homeloanexperts.com.au/genuine-savings/first-home-super-saver-scheme/

  • Vanessa Flahive

    Hi There,
    I have 72k in my Super and moving back to NZ in a months time (you can use majority of your KiwiSaver (NZ Super) for a first home house deposit) When I TF my super to KiwiSaver I have to go by Australian Laws once it is in my KiwiSaver which means I cant access it till im 65yrs. I wanted to know if you think I am safer to wait and see if there are any changes with the terms in Australia (for example if I wait I might be able to use a portion of the current amount as a deposit)???

  • Vanessa Flahive

    Hi There,
    I have 72k in my Super and moving back to NZ in a months time (you can use majority of your KiwiSaver (NZ Super) for a first home house deposit) When I TF my super to KiwiSaver I have to go by Australian Laws once it is in my KiwiSaver which means I cant access it till im 65yrs. I wanted to know if you think I am safer to wait and see if there are any changes with the terms in Australia (for example if I wait I might be able to use a portion of the current amount as a deposit)???

  • Hi Vanessa,
    Sorry but we can’t provide any financial or tax advice. It would be best for you to discuss this with a professional financial adviser / planner or your accountant.

  • Angie Sparks

    We are first home owners about to buy our first home. If we commit to a house before July 1st and the legislation is passed are we able to use the super saver for a year to pay towards our mortgage?

  • Hi Angie,

    Unfortunately, we won’t know the nature of the final legislation until it’s passed in Parliament. From what we understand, the super saver account is purely to help first home buyers save a deposit, not help with mortgage repayments. In the meantime, we recommend that you speak to an accountant about the First Home Super Saver Account to ensure that you’re following tax law if it is in fact legislated.

  • Paul Crømbié

    Hi guys,

    A couple questions. Firstly can you explain to me the advantages of non-concessional contributions and secondly if we were to use non-concessional contributions would it be taxed again once we draw down on it.

  • Hi Paul,
    Sorry we’re not experts in superannuation and tax, we’re experts in mortgages. The case study on this page may answer your questions but I’d recommend that you speak to a financial planner or accountant to be sure.

  • Corey

    Hi Guys,
    If I save as a single for 1-2 years and then I meet someone who already has a property and we want to buy together, can I still take out the money in my super to put towards a property on a joint mortgage? Cheers

  • Hi Corey
    I’m not sure about this. The final legislation hasn’t been passed by parliament yet so many questions like this are a grey area for now. We expect there should be clarity on this within two months.

  • Atif Khan

    Hi there

    My question is… can we use our super money after first july 2018 which is already from past and not contributed after the new law.

  • Hi Atif,
    The legislation hasn’t been passed yet so we can’t be sure. However based on what we know now it looks like no you cannot.

  • Soweri Suguta

    Hi
    What about first home buyers that have been putting voluntary contributions into their superannuation, can they use that to buy their first home. I have over $30.000 voluntary contributions in my super. I want to buy a house.

  • Lirui Zhu

    If you are an expert in mortgages, you should know the related policy, especially those heavily impact your mortgages business. Advice someone to see other expert, i can be that kind of expert.

  • Mykel

    Can super be used to pay stamp duty?

  • No sorry it can’t at the moment. Additional super contributions you made after 1/7/17 into a special super saver account may be used to pay for costs.