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Help your kids buy a house (faster) - Eureka Report article

Help your kids buy a house (faster)

By Scott Francis
June 23, 2010

PORTFOLIO POINT: Contributing $1000 to a First Home Saver Account before June 30 will attract a government co-contribution and set your children on the path to home ownership.

Eureka Report readers concerned about rising property prices locking their children out of the market should encourage them to open a First Home Savers Account before the end of the financial year.

The accounts, which cannot be touched for four years – offer a generous government co-contribution of 17% on the first $5000 deposited annually and are a great way for young people to get a head start on building a deposit.

While the accounts are limited to individuals aged between 18 and 65 who have not previously purchased or built a home in Australia, there is nothing in the rules to prevent parents and grandparents to providing their offspring with a cash gift to get them on the right track.

But to make the most of the program, you’ll need to act fast. Because if you can open an account before the end of the financial year you can effectively reduce the four year term to a three-year-and-one-month term.

The FHSA fact sheet clearly states that “to withdraw their funds, minimum contributions of $1000 need to be made over the course of at least four separate financial years.”

On that basis, you could open an account over the next week and have the funds paid into a complying mortgage by July 2012 simply by making contributions on the dates below.

  • June 30 2010
  • June 30 2011
  • June 30 2012
  • July 31, 2012

Following an extremely poor reception to the introduction of the FHSA program in 2008, the government announced a series of proposals which addressed key criticisms about the accounts. But those hoping to take full advantage of the program should act now.

The key change to the account was a loosening of the terms.

When the scheme was introduced, the account holder was unable to access the money for four years. If they bought a house in the interim then the funds would be transferred into a complying superannuation fund.

The changes state that if a property is bought during the four year qualifying period that those funds can be paid into your mortgage at the end of the four year period. This design is far more attractive to those who may be in a situation to buy their first property sooner.

Given the rigid nature of the scheme, it is no big surprise the accounts weren’t especially popular. Major financial institutions such as NAB and Westpac are yet to offer them. However there is a selection of accounts available offering good rates if you look hard.

-What they're offering
Members Equity FHSA
Police Credit Union NSW FHSA
Commonwealth Bank FHSA

While the changes have been communicated well, the finer details of the scheme and how it operates in practice are less well known. The scheme’s website spells out the new proposals however materials available from ASIC and the ATO are yet to reflect these changes.

For this reason our suggested strategy is to start small. The smart approach would be for the first home buyer to make contribution of $1000 before the end of the financial year. This is the minimum amount to be deposited in a financial year.

If the changes to the scheme are as favourable as they seem then this method allows you to reach the end of the four year term more quickly. If they are more complicated then they seen then we have reduced the potential downside to just $1000, a small sum when you consider the potential rewards.

Just remember the basics:
  • The accounts must be opened by individuals aged between 18 and 65 who have not purchased a home.
  • When contributions of up to $5000 is made the government will add a further 17% (up to $850).
  • Contributions of at least $1000 must be made in four financial years before the money can be released.
  • The accounts have a cap of $75,000.