A. On the 12th May, Scott Morrison announced additional financial 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 current deposit savings and the 20% deposit requirement of most mortgage lenders.
Whilst lenders may offer loans to some first home owners with a deposit of less than 20%, the scheme will mean that first home owners who cannot save a 20% deposit may avoid the additional financial expense of Lenders Mortgage Insurance. Lenders Mortgage Insurance 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 per year. To be eligible, new homebuyers must have saved at least a 5% deposit.
The value of homes that can be purchased under the scheme will be determined on a regional basis, reflecting the different property markets across Australia.
If legislation is passed by the Parliament, the scheme will start 1 January 2020.
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 similar scheme in addition to its other housing policy proposal.
The First Home Loan Deposit Scheme will be funded via the National Housing Finance and Investment Corporation (NHFIC). NHFIC will have a funding capacity limit of $500 million. The government will underwrite the home loans and will 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.
The proposed scheme is modelled on the New Zealand “Welcome Home loan Scheme” that has been operating since 2003.
Q. I am looking to use the First Home Super Saver Scheme (FHSSS) to buy a home. How does it work and how do I take advantage of the incentive?
A. The FHSSS provides the opportunity for First time home owners 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 superannuation contributions (such as the 9.5% Superannuation Guarantee) made from 1 July 2017.
In order to qualify, you must be 18 or over and have not previously owned property in Australia. Broadly, superannuation contributions of up to $15,000 per financial year and $30,000 in total, can be accessed under this scheme. Both members of a couple may be eligible to take advantage of this measure to buy their first home, effectively meaning that a couple can access voluntary contributions of $30,000 per financial year and $60,000 in total.
In addition to being able to access superannuation contributions (up to the above amounts) 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. The Associated Earnings rate will be calculated on the Shortfall Interest Charge which is currently 4.94% effective January-March 2019. Note that the Associated 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 can be made as post-tax Non-concessional contributions. The contributions will count against the applicable Superannuation contribution caps. The Concessional contribution cap which includes Employer contributions or personal deductible contributions will be $25,000 and the Non-concessional contribution cap (personal after-tax contributions) will be $100,000 per financial year. Concessional contributions will generally be taxed at 15% when made to the fund. Non-concessional contributions will not attract tax on entry to the fund but are made from after-tax money.
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 6 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. That is, the taxable portion of amounts accessed under this scheme will be added to your assessable income for the year but you will be eligible for a 30% tax offset to reduce any tax burden. If applicable, the ATO will withhold an amount of tax before you receive the final proceeds.