Using super for a home deposit

Saving for a first home deposit is challenging for many buyers, given how quickly property prices have escalated in the past few years.

The average home loan in Australia in 2021 was just shy of $600,000, but in Sydney, it was closer to $800,000, Australian Bureau of Statistics data shows. That means to come up with a 20 per cent deposit for the average Australian home loan (and avoid Lenders Mortgage Insurance), a buyer would have to stump up $120,000; in Sydney, $160,000.

Many lenders accept deposits below 20 per cent, but again, this typically attracts Lenders Mortgage Insurance, which protects lenders in case a borrower defaults. This expense is usually at least $10,000 and can be much more.

Saving into super for a home deposit

In 2017, the Federal Government introduced the First Home Super Saver Scheme (FHSS) to help people save for a deposit through their superannuation.

Generally, super is considered a tax-friendly savings vehicle because most contributions attract a relatively low tax rate for many people. That means those who put extra money into super may be able to build their savings faster by paying less tax than they would ordinarily.

How the First Home Super Saver Scheme works

Under FHSS, people can make voluntary pre- and post-tax contributions to their super fund, then apply to withdraw that money for a home deposit.

Prospective homeowners can take out up to $15,000 of their voluntary super contributions from any one year, to a maximum of $50,000 total (as of July 2022), provided they:

1. Have never owned a home before
2. Are aged over 18
3. Intend to live in the home and will occupy it for at least six months of their first year of ownership.

Borrowers using this scheme will also receive earnings on the voluntary super contributions they withdraw.

Some other things worth noting

The Australian Taxation Office (ATO) says there are a few things people who wish to use this scheme should be aware of:

• The contributions your employer makes to super under the Superannuation Guarantee cannot count towards your deposit.
• People can have eligible savings released from super only once.
• Borrowers need to have their FHSS payment approved by the ATO before signing a contract to purchase a home.
• The home must be located within Australia.

Other ways to save for a deposit

There are many other methods people use to save for a home deposit outside of super. These include:

• Putting money into a high-interest savings account or term deposit
• Setting a budget and savings plan for a period of time
• Living with parents for longer, if possible
• Applying for a state-based first home owner grant, if available.

If you would like to read more about the FHSS, visit ato.gov.au