HOME LOANS

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The financial incentive most first buyers overlook

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At a time when the government has reduced the amount of cash support being given to first home buyers – either by reducing grants or limiting stamp duty concessions – there’s one program aimed at supporting saving that’s gone mostly unnoticed.

The First Home Savers Account Scheme was introduced by the Rudd Government in 2008, giving account users an extra 17 percent bonus for the first $5000 contributed by the saver each year.

When the government launched the scheme, it predicted 750,000 Aussies would use it save for their first home. Unfortunately, those numbers have been way, way off.

New figures released by the Australian Prudential Regulation Authority show up until December 39,000 accounts had been opened – about 19 times fewer than initially predicted. The total balance of these accounts has grown to $401 million and the average balance is $10,282.

How the major banks can help

Strict rules and ignorance have been blamed for the low uptake of first home savers accounts.

Michelle Hutchison, spokeswoman for RateCity said that while there’s a number of things government could look at to improve the scheme – most notably around reducing the paperwork burden – there’s also an opportunity for the major banks to come to the party.

“Right now only 10 institutions offer these accounts – and none of the big four banks,” she said.

“Currently around 92 percent of Aussies bank with one of these institutions, so if they’re not offering first home saver accounts, it’s no surprise that many potential buyers haven’t heard of them and so don’t use them.”

Institutions could benefit from offering these accounts, she said, not just in terms of the good PR that comes with supporting first home buyers.

“These accounts could help institutions market home loans to prospective customers. Savers aren’t likely to switch accounts and their bank will have the inside track to offer a home loan to them when they are ready to buy,” she said.

The benefits and conditions explained

As the name suggests, these accounts are open to people saving for their first home. They have two main benefits. First, the more money you save, the more the government will contribute – up to a limit each year.

Also, the interest you earn on the account is only taxed at a rate of 15 percent, according to the Australian Securities and Investment Commission.

There are a number of conditions that must be met to earn the bonus interest.

First, you must be an Australian resident aged 18 to 65 years.

You’ll need to save at least $1000 each year over at least four financial years before you can withdraw the money. The maximum account balance is capped at $90,000 (indexed) and after your savings reach this level, only interest and earnings can be added to the balance.

The money has to be used for your first home. If it’s not, it is added to your superannuation and you can’t access it until you are retired or can meet another condition of release. If you buy your first home before the four year period is up, you can withdraw the money in your account at the end of the four years to put towards your mortgage, but you won’t be able to make further deposits once you’ve purchased your property.

Not all first home saver accounts are the same so choose the account provider you want to have your account with read their product disclosure statement to find out more.

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