Saving a deposit is the toughest challenge for first-home buyers and the federal government has promised to provide a helping hand with a new savings initiative worth $250 million.
The First Home Super Saver Scheme will allow entry-level buyers to save funds at a discounted tax rate by making additional contributions to their superannuation.
These additional contributions, and earnings made on them, would then be able to be withdrawn to be used as a home deposit.
Given the more favourable tax treatment of superannuation contributions, this provides an incentive for first-home buyers to save – any concessional contributions and earnings withdrawn will be taxed at the marginal tax rate, less a 30 per cent offset.
For couples, both individuals can take advantage of the scheme.
Federal budget documents released on Tuesday indicate that it will “enable first home buyers to build savings more quickly for a deposit”.
But there is a limit on how much can be contributed and withdrawn, with first-home buyers able to contribute up to $15,000 a year and $30,000 in total, within existing caps.
Depending on the rate of earnings, $60,000 withdrawn between a couple would roughly pay for the stamp duty on a home priced at Sydney’s $1.15 million median house price.
Contributions can be made from July 2017 and withdrawals allowed from July 2018.
Budget papers estimate the cost to revenue at $250 million from 2017-18 to 2020-21, picking up from $50 million in the first year to $70 million in the last two years forecast.
The government has allocated $9.4 million to the Australian Taxation Office to help introduce the measure.
The basic details of such a scheme were heavily debated before the budget, and it was supported by affordability-lobby First Home Buyers Association of Australia co-founders Daniel Cohen and Taj Singh.
It was the preferred option over the more contentious proposal to allow first-home buyers to dip straight into their superannuation accounts for a deposit, as opposed to providing additional contributions.
A previous First Home Savers Account scheme was scrapped due to a lack of uptake from young home buyers, but there were some notable differences.
It required potential home buyers to keep their savings locked in the accounts for several years and, should they then not access the funds to buy a home, the money was redirected to their superannuation accounts for access on retirement.
The scheme also required first timers to set up a special account with a financial institution. The revamped version avoids the requirement for any additional account.