How first home deposit scheme works

The scheme will mean first-home buyers may avoid the additional expense of mortgage insurance.

On May 12, Scott Morrison announced support for those looking to buy their first home. The First Home Loan Deposit Scheme offers an additional loan facility to first-home buyers to fund the gap between their deposit savings and the 20 per cent deposit required by most lenders.

The scheme will mean first-home buyers who can’t save a 20 per cent deposit may avoid the additional expense of lenders’ mortgage insurance, which protects banks in case borrowers default on their mortgages.

To qualify, first-home buyers may earn up to $125,000 a year and couples a combined income of up to $200,000 a year. To be eligible, buyers must have saved a 5 per cent deposit.

The value of homes that can be purchased under the scheme will be determined on a regional basis, reflecting differing property markets. If legislation is passed, the scheme will start on January 1.

The government plans to cap assistance to 10,000 first-home buyers annually. The initiative appears to have bipartisan support as the opposition announced during the election campaign that it would match the government and implement the same or a similar scheme.

The scheme will be funded via the National Housing Finance and Investment Corp, which will have a funding capacity limit of $500 million. The government will underwrite the home loans and serve as the guarantor.

Scheme participants will be able to receive support from the program for the life of the loan or until their mortgage can be refinanced.

I am looking to use the First Home Super Saver Scheme to buy a home. How does it work and how do I take advantage of the incentive?

The FHSSS provides the opportunity for first-time homeowners to access a portion of their superannuation to assist in funding the purchase of a home. Qualifying first-home owners will be able to access voluntary personal and employer contributions in excess of any mandatory super contributions (such as the 9.5 per cent super guarantee) made from July 1, 2017.

To qualify, you must be 18 or over and have not previously owned property in Australia. Broadly, super contributions of up to $15,000 a financial year and $30,000 in total can be accessed. Both members of a couple may be eligible to take advantage of this measure, meaning a couple can access voluntary contributions of $30,000 a year and $60,000 in total. An associated amount of earnings can also be accessed from the super fund. Earnings available for withdrawal will be calculated at a deemed rate of return, referred to as the associated earnings rate, which will be calculated on the shortfall interest charge — 4.94 per cent effective January-March 2019. Note the earnings rate could be greater or less than the actual rate of return earned on the funds.

Contributions can be made as pre-tax concessional contributions or as post-tax non-concessional contributions. The contributions will count against the applicable super contribution caps. The concessional cap, which includes employer contributions or personal deductible contributions, will be $25,000 and the non-concessional cap (personal after-tax contributions) will be $100,000 a year.

To qualify to have the funds released, the purchase must be a residential home or land that you intend to build a home on. You must occupy the property for at least six months in the first year of ownership after it is practical to do so.

Tax may be payable on amounts you withdraw under this scheme.

Andrew Heaven is an AMP financial planner at WealthPartners Financial Solutions.

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