As the official cash rate nears its peak, the federal government has stepped in to improve the flexibility of the First Home Super Saver Scheme as demand wanes among first home buyers.
Intended to allow first home buyers to make voluntary contributions to their superannuation and release these savings, with associated earnings, for a home deposit, the government has passed legislation to address “significant pain points” in the scheme.
Mortgage broker Aidan Hartley (pictured above left), director of Blue Owl Finance, welcomed the changes, which extend the timeframe to request a release of savings (after entering into a contract) from 14 days to 90 days.
“It’s a brilliant scheme and heavily underutilised, so it’s great to be able to give the scheme some daylight,” said Hartley. “It works like a salary sacrifice, and it’s a superb way to accelerate your first home deposit savings.”
Hartley said that given a “huge chunk” of his business were first home buyers, he estimated around 20% of his clients used the scheme.
“Even less fully utilise the super savings scheme over multiple tax years, to gain the full benefit of $15,000 per year, or $50,000 in total.”
Adele Andrews (pictured above centre), director of brokerage Australian Property Home Loans, was more sceptical of the scheme and had not any clients consider it yet.
“Whilst I agree with it in theory because of the behaviour it encourages, you are somewhat at the peril of the investments that the superannuation fund is made up of,” Andrews said.
“I love the idea of young people putting away extra money into an account consistently – whether it be towards their superannuation or another account – with the view to purchasing a home, but I think that if that same level of discipline can be applied to another channel, the outcome may be more beneficial.”
First introduced in the 2017-18 budget, the FHSSS has been largely overshadowed by other first homebuyer incentives, especially during the record low interest rate environment experienced throughout the COVID-19 pandemic.
However, Financial Services Minister Stephen Jones (pictured above right) said the changes to the FHSSS, address “significant pain-points” in the scheme, which could increase its uptake.
“The FHSSS was introduced by the previous government yet was plagued by administrative shortcomings including an inability to rectify application mistakes and inflexible timeframes,” Jones said.
“Under the former government’s scheme, Australians were promised support to buy a home but were left stranded and disappointed. For around 4,000 Australians, this has left them unable to buy a home through the FHSSS.”
While Hartley admitted that he was not a tax accountant, the scheme could save first homebuyers thousands of dollars on taxes. However, he was yet to see how these changes to the scheme’s processes would impact brokers and buyers.
“Currently, I’d warn buyers that the scheme can take a few weeks to release your funds back, so the minute you sign a purchase contract, get onto them, so the funds are released to you before settlement,” Hartley said.
Andrews said that while she found the maximum amount of $50,000 plus deemed associated earnings was “a bit subjective”, she understood its purpose.
“The biggest benefit I do see though is that it is a lot harder to access those funds during that saving period, which could be a considerable benefit for many,” she said.
What challenges currently exist for first home buyers?
Like the rest of the property market, the demand among first home buyers has been turbulent.
After the pandemic-induced record low interest rates created a surge of new loan commitments in 2021 and early 2022 particularly among first home buyers, demand had tapered off bottoming out in February this year.
While there has been a slight resurgence in demand in the months after which was largely driven by investors, new loan commitments are trending lower, dropping 1.2% between June and July.
In terms of first home buyers specifically, the latest ABS data showed new loan commitments have dropped by -8.1% in the year to June.
However, it’s important to note that this ABS data lags by two months and doesn’t necessarily reflect what’s happening on the ground.
Hartley said it had “certainly been quieter” over the past year given that his niche was getting first home buyers on the property ladder.
However, since the recent RBA rate pauses, he had found demand creeping back in as buyer confidence grows.
“Rents have gone up, in some cases by hundreds of dollars a week. Those in a position to purchase, are seeing value in buying again now,” Hartley said. “The tricky part is for any first home buyer is balancing both having enough deposit, and having enough surplus income to demonstrate to the bank you can afford the loan repayments.”
Hartley said that last year you could borrow about 7.5 times your income, but now it was closer to five times, forcing many first-time home buyers into lower-priced units or less preferred areas.
“Brokers with a solid understanding of all four of the first home buyer government schemes will be best positioned to help their borrowers buy.”
Andrews said she had seen an uptick in first homebuyers, but the “biggest challenge” was finding stock.
“I have some great clients who have followed home loan ready processes to a tee – they have got themselves to a great position to be able to buy, only to be a little frustrated with the market,” Andrews said.
“There is no doubt that there are some serviceability challenges out there too, but now that rates have settled a little I think clients are getting their heads around we have landed - and that their borrowing power is what it is.”
Andrews said she had also seen more first home buyers look at buying an investment property while living at home with family to save on costs.
“There is a strong appetite out there for buyers to get onto the property ladder, many just need the education as to the best way to go about it and a realignment in relation to their budget and expectations,” Andrews said.
“This is where brokers play a huge role for this demographic – it is just so important to spend time with them, go through their options, educate them on various scenarios and help them to make informed decisions,” she said.
“We are their most valuable resource right now, and it is something that I take very seriously.”
