New rules for first-home saver accounts allocate leftover money to the mortgage.First-home saver accounts (FHSAs) offer a rewarding approach to saving for a home loan deposit but not many first-home buyers take them up. Criticised as complex and inflexible when they appeared on the market in 2008, FHSAs have attractions that are usually overlooked when people are looking for a savings vehicle.
But be warned: you may have to hunt about for a first-home saver account. Only 18 financial institutions offer them and most of them are credit unions. ANZ is the only one of the big banks to offer an FHSA. The most active participants have been ME Bank and AMP Bank.
In the scheme, as it first appeared, first-home buyers have to contribute a minimum of $1000 a year to their FHSA over four financial years to qualify for concessional tax treatment and government contributions and cannot put the money to a home purchase until after that time has passed.Interest earned on FHSA account balances is taxed at 15 per cent (interest earnings are usually taxed at the taxpayer’s marginal rate).
The government makes a contribution over the four years.Initially, the government contribution was 17 per cent on the first $5000 deposited each year, meaning account holders could qualify for up to $850 of government funding a year.That contribution threshold is indexed and has gone up to $5500 this year, which means FHSA account holders are eligible for a government top-up this year of $935 (17 per cent of $5500).
Withdrawals are tax-free but can only be used to go to the purchase of a first home.
If you change your mind about buying a house, you have to transfer the balance of the account into your super fund. You will not be allowed to open another first-home saver account after this.If you are older than 60, the balance can be transferred directly to you.
To qualify for the concessions, the customer must make personal after-tax contributions of at least $1000 a year over four financial years. Account balances are capped at $80,000. The cap is indexed and went up from $75,000 last year to the present level.
Commentators have argued that a big drawback with the scheme is that first-home buyers are required to keep their money on deposit for four years. This is a difficult condition to agree to if they are shopping for a home.
The government made changes to first-home saver accounts last year, with the aim of making the scheme more flexible. Under the old rules, if the holder of a first-home savings account bought a house before the four years was up, the money in the FHSA would go into their super account.The government has not changed the four-year qualifying period but now it will allow people to buy a home and then put the money saved in the FHSA into the mortgage after the qualifying period has ended.Rates on some FHSAs are comparable with high-yield online savings account rates. ME Bank is offering 5.5 per cent on its account.