The government offers programs to assist first home buyers to lessen the financial barriers and pressures when buying real property for the first time. This article explains the first home super saver (FHSS) scheme and the First Home Guarantee Scheme available nationally through the federal government.

First home super saver (FHSS) scheme

The first home super saver (FHSS) scheme is about using your super fund as tool to save for your first home purchase with lower tax rates applied to those savings. This means first home buyers can save a loan deposit quicker (through tax efficiencies) and the structured approach of a super fund ensures the funds will be safeguarded from being spent elsewhere. The FHSS scheme savings can be used for any part of the home loan purchase and mortgage e.g. deposit, purchase costs, repayments etc.

The scheme works by making extra payments into your regulated super fund through a salary sacrifice arrangement with your employer or by making voluntary contributions.

The FHSS scheme is used for purchasing a residential property in Australia and you must occupy it for at least six months (of the first 12 months after settlement) as soon as it’s practical to move in. The amount of money you can save for the FHSS scheme purposes is capped at $15,000/financial year and $50,000 total. Many factors apply to if you’re eligible and the practical aspects of how to withdraw the funds in the property purchase process. Importantly, home buyers must not to sign any property contract before they request a FHSS determination from the Australian Taxation Office (ATO).

Here are some key points about the FHSS scheme:

  • Each year, the ATO will issue a ‘payment summary’ for tax return purposes.
  • If a debt is owed to the ATO, this can impact withdrawals both in the timing and the amount (e.g. pending withdrawals can be reduced to zero if the ATO offsets an outstanding debt).
  • Contributions are taxed at the superannuation rate (usually 15%) rather than at income tax rates, which are higher in most cases.
  • Withdrawals are taxed at first home buyer’s marginal tax rate, minus a 30% offset.
  • Any funds that were released to the first home buyer can be returned to the super fund without the yearly or total limit caps being impacted (from 15 Sept 2024).

First Home Guarantee

The First Home Guarantee gives eligible home buyers on low and middle incomes the pathway to purchase a home with a deposit starting from five percent. Housing Australia delivers this initiative and provides a guarantee to the lender covering up to 15% of the property’s value. Those amounts total the typical 20% deposit required to get a mortgage without the requirements to:

  • Pay Lenders Mortgage Insurance—to protect the lender’s risk in lending for a property with a low loan-value-ratio (LVR).
  • Pay a low deposit premium—a bank fee paid once.
  • Have a guarantor on the loan—usually a parent or relative who use their real property as security to guarantee they’ll be responsible for repayments if the borrower can’t repay for any reason.

Eligibility is primarily based on income limits—$125,000 for singles or $200,000 for couples—and the property’s value, which varies by state and city/regional locations. The First Home Guarantee initiative is particularly useful for buyers struggling to save for the usual 20% deposit.

Housing Australia has 35,000 loan allocations for First Home Guarantee applicants until June 2025. Those 35,000 allocations are spread across certain lenders that participate in the First Home Guarantee. Due to the government support being given to enable lenders to approve these home loans, those loans are subject to restrictions such as:

  • No redraw facilities to withdraw equity out of the loan.
  • No ability to increase loan amounts. For example, if at a later time you wanted to borrow additional funds or ‘top up’ your home loan amount for property renovations.

Therefore, borrowers who want those type of loan features/functions, would need to refinance their home loan and potentially would need to pay Lenders Mortgage Insurance on the new loan. So, while the First Home Guarantee enables entry into the property market (for first home buyers and people who haven’t owned property in Australia for over 10 years), it’s restricted by various eligibility criteria, requirements, and property value limits. Property limits are capped in Queensland at $700,000 for greater Brisbane, Gold Coast, and Sunshine Coast. And the rest of Queensland is capped at $550,000. Whereas, for New South Wales (NSW), property limits are capped at $900,000 for the capital city/regional centre and the rest of NSW is capped at $750,000.

First Home Guarantee applicants must:

  • move in within six months of the property settlement
  • live at the property: any applicant who moves out is no longer covered by the scheme.

Next steps

Whether you think the first home super saver (FHSS) scheme or the First Home Guarantee initiative is the best pathway forward, you should speak to your broker at Get Real Finance first. We will cut through all the information needed based on individual circumstances and goals to help our clients to make informed decisions that empower them in the exciting milestone of buying their first home. As brokers we can effectively gauge any income limit tests and what is factored into eligibility.