Written by Lisa Micallef in February, 2008

As interest rate rises and mortgage payments are now costing at least 30% of home owner’s total income on mortgage payments, it becomes more and more difficult for first home buyers to purchase their own home. The Federal government has introduced a new savings plan for first home buyers to give people entering the real estate market a better chance to owning their own home.

The new scheme is set to kick-off in July 2008 and is a great opportunity to help low and middle income earners to enter the housing market.

The idea involves an initial deposit of $1,000 into a “First Home Buyers Savings Account”, which will be offered by superannuation funds, banks and life insurers.

Earnings on these accounts will be taxed at the same low rate of superannuation funds of 15% and withdrawals are tax-free when the savings are used to purchase your first home or roll it over into your superannuation fund.

What other benefits does the savings fund offer me?

When you make contributions up to $5,000 per year of your after tax income, the government will then co-contribute at least 15% of that amount depending on your marginal tax rate.

The government will either contribute 15% or your marginal tax-rate minus 15%, which ever is higher. So if you contribute $5,000 to the savings fund and your marginal tax rate is 15% or 30% (i.e. 30% – 15%), the government will contribute $750, on the other hand, if you are a higher income earner of a marginal tax rate of say 45%, you will earn $1,500, being $5,000 X (45% – 15%).

Traps You Should Know About?

• You must be an Australian resident and over between the ages of 18 and 65 and have not previously owned a property.

• You must have at least $1,000 to open a First Home Buyers Savings account;

• You can only contribute a maximum amount of $10,000 per year;

• Out of that $10,000, the government will only co-contribute based on the first $5,000 contribution;

• Your contributions must be paid out of after-tax income;

• The maximum amount of deposits allowed in the fund is up to $50,000;

• You generally can’t make any withdrawals from the fund unless at least $1,000 was contributed each year for at least 4 years.

• If you don’t eventually purchase a property, you may only transfer the funds into your Superannuation Fund.