Budget 2021: Buying a home with super gets a boost but at what cost?

Saving for your first home

As part of the 2021-22 Federal Budget, the government has introduced a number of budget measures to give Australians a leg-up when it comes to buying their first home

Treasurer Josh Frydenberg announced on Saturday that first home buyers could access up to $50,000 voluntary super contributions to fund their first home, under the First Home Super Saver Scheme (FHSSS). This is an increase from $30,000. 

Any voluntary contributions you've made under the scheme since July 2017 will count towards the new $50,000 maximum.

The initial scheme, which arose out of the 2017-18 budget to “reduce pressure on housing affordability”, is based on the idea that it’s faster to save for a deposit inside superannuation than via a savings account. That’s thanks to the tax concessions of super as well as the power of compound interest. 

But not everyone is on board with the scheme given the potential risks of withdrawing part of your super early. In fact, the Labor party went to the last federal election with a plan to axe the support measure, arguing that super should be used solely for retirement. 

Mozo’s banking expert, Peter Marshall says there are pros and cons to weigh up.

“This scheme will mean you’re going to have less money available once you retire, but then there is the argument that if it helps you get a roof over your head that is more stable than renting, you’ll need less super anyway,” he said. 

“People should also be aware that there are no guarantees with how much you’ll actually get out of superannuation, as you could lose money in super if the markets go sour. Whereas putting that money in a house offers more stability. So there are trade-offs involved.” 

However Marshall expressed concern that the scheme may further heat up competition in the property market, which has already seen prices surge to record highs. 

“We’re in a cycle at the moment where the government is doing a lot to help people get into the market, and the outcome of that can be seen in weekly headlines about how much a house was sold above reserve price and how much people have made in profit just by buying a house six months ago and selling it now,” he said. 

“There are just too many people wanting to buy amid limited resources and that’s pushing prices up. All the government schemes designed to help make housing more affordable are actually contributing to their unaffordability. So it’s a bit of a catch-22 at the moment.” 

When to approach the First Home Super Saver Scheme with caution

While it may be tempting to opt for the FHSSS to help you get into the market sooner, Marshall said it’s worth thinking long-term about your finances before jumping in. That means considering whether you can still afford your home loan repayments, even if circumstances change down the track. 

“Something that everyone buying a property for the first time should be aware of, particularly right now, is that interest rates can change. So while you might be able to squeeze in to qualify for a bank loan now, it pays to ask yourself if you would still be able to service the loan if interest rates are significantly higher in five years’ time,” Marshall said. 

“If you’re having to access super to get into the market, you should be extra careful about not borrowing too much.” 

For more information, read our guide on the First Home Super Saver Scheme or listen to the latest episode of The Finance Burrito podcast!

You can also visit our mortgage repayments calculator to crunch the numbers on how much your home loan might cost you each month.

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