For many Australians, saving a deposit is the hardest part of buying property. To help, the government introduced the First Home Super Saver (FHSS) Scheme, allowing you to use super to buy your first home. But while appealing, it’s not without drawbacks. Let’s explore the pros and cons in detail.
In This Blog You’ll Learn:
- How the First Home Super Saver Scheme works
- The benefits of using super to buy your first home
- The potential drawbacks and risks to be aware of
- How professional guidance can help you make the right decision
How Does the FHSS Scheme Work?
The First Home Super Saver Scheme lets you make voluntary contributions into your super fund, which you can later withdraw (up to a capped amount) to help with your first home deposit.
- Contribution limits – You can contribute up to $15,000 per year and $50,000 in total.
- Eligible contributions – Both before-tax (concessional) and after-tax (non-concessional) contributions are allowed.
- Withdrawals – You can release the contributions, plus associated earnings, when purchasing or building your first home.
It’s designed to help first-time buyers save faster thanks to the tax advantages of super.
The Pros of Using Super to Buy Your First Home
1. Tax Savings Help You Save Faster
Super contributions are usually taxed at just 15%, compared to your normal income tax rate. For most Australians, this means more of your money goes toward your deposit rather than tax, helping you save faster.
2. Disciplined Saving Structure
Because money in super is harder to access than a standard savings account, the FHSS Scheme creates a disciplined saving environment. You’re less likely to dip into your deposit savings for day-to-day expenses.
3. Boosts Borrowing Power
By accelerating your deposit growth, using super to buy your first home can help you reach the minimum deposit threshold sooner. This reduces the need for lender’s mortgage insurance (LMI), which can save tens of thousands of dollars.
4. Government Support for First-Time Buyers
The scheme is specifically designed to help Australians struggling with rising property prices. For eligible applicants, it’s a practical way to bridge the gap between savings and home ownership.
The Cons of Using Super to Buy Your First Home
1. Contribution and Withdrawal Limits
While helpful, the scheme has strict caps—$15,000 per year and $50,000 in total. For many buyers, this may not be enough to fully cover a deposit, especially in major cities where prices are higher.
2. Potential Delays and Red Tape
Withdrawing your savings through the ATO can take time, and you need to apply for a release before signing a contract. Failing to follow the process correctly can cause delays and even risk your purchase falling through.
3. Market Risks Still Apply
Even with a boosted deposit, you’re still exposed to property market fluctuations. Overcommitting or rushing into buying a first home just because you accessed your super savings can leave you financially stretched.
4. Limited Flexibility
Once you withdraw funds under the scheme, you must use them to purchase a property within a specific timeframe. If your circumstances change, you could face complications or be forced into a purchase you’re not ready for.
5. Reduced Superannuation Balance
Using super to buy your first home means less money remains in your retirement fund. While home ownership is an asset, you may lose out on the long-term compound growth that super investments provide.
Common Mistakes to Avoid
Even with its advantages, many first-home buyers trip up when using super to buy their first home. Common errors include:
- Misunderstanding eligibility – Not everyone qualifies, and conditions apply (e.g., you must be a genuine first-home buyer).
- Failing to plan timing – Accessing funds takes time, and contracts must be handled carefully.
- Ignoring extra costs – Stamp duty, inspections, and conveyancing fees still apply and aren’t covered by FHSS.
- Skipping legal advice – Property contracts can be complex, and mistakes during settlement can be costly.
This is where engaging professional support is vital. Services like property buying conveyancer ensure your contract is watertight and your obligations are clear, giving you peace of mind throughout the purchase process.
Should You Use Super to Buy Your First Home?
The FHSS Scheme can be an effective tool, but it isn’t for everyone. If you’re disciplined with savings and want to maximise tax benefits, it’s worth considering. However, if you’re close to retirement age, or if withdrawing funds would significantly reduce your long-term super balance, it may not be the right move.
Speaking to both a financial adviser and a conveyancer ensures you weigh up short-term benefits against long-term security.
Conclusion
Using super to buy your first home can fast-track your deposit and reduce tax, but it comes with limits and risks. Weighing the pros and cons is essential before making a decision. For expert support in handling contracts and settlement, trust Jim’s Property Conveyancing. Call 131 546 today.