First home buyers have the option to use their superannuation to fund their first home, through the First Home Super Saver Scheme (FHSS). With the increase in property prices and costs of living, this presents a great opportunity for some who find it hard to save. But do the pros outweigh the cons of doing so? Keep reading to find out.
What is the First Home Super Saving Scheme (FHSS)?
The FHSS scheme allows first home buyers to use money from their superannuation towards a deposit for their first home. Currently first home buyers can apply to have a maximum of $15,000 of voluntary contributions from any one financial year released under the FHSS scheme. A total of $30,000 contributions across all financial years. From July 2022, the maximum of releasable contributions that can count across all years will increase from $30,000 to $50,000.
Let’s look at the pros
The FHSS scheme is a great help for buyers who find it hard to save. Allowing them to access up to $50,000 to put towards their deposit. This is a big boost for first home buyers as saving a deposit is a major hurdle to homeownership. With the FHSS scheme, first home buyers will be able to get into the property market sooner along with capitalise on future growth.
Now the cons
When money is withdrawn from superannuation, the individual is missing out on compound growth over the long term. To replenish the super used over the long term, the property needs to increase in value. Assuming the property has, the equity gained can then be used to reimburse the super that was borrowed. On the flip side, if the buyer needs to default on their loan and they make a loss on the property when they sell. There is no extra money to fall back on.
Which is the better option?
There are long term costs of withdrawing super to use for a deposit. The FHSS scheme presents opportunities for some in the short term, but it does come at a cost in the long term. We recommend first home buyers consider the short and long term impacts before using the FHSS scheme. Along with speaking to a professional for advice.