Purchasing a property as early as you can, preferably by your mid-20s, gives you the opportunity to begin building your wealth portfolio at an early stage and the chance to clear your mortgage debt sooner rather than later. For those belonging to the Generation Y, a meeting with your mortgage broker in Baldivis or wherever your area is, gives you the opportunity to look at your long-term planning to see what action you need to take now so that you can purchase a property when the time is right.
The Generation Y were born somewhere between the late 70s and up to the year 2000. These are the people who are finding that they need a larger deposit to purchase their first property, in comparison to any previous generations. Despite the recent recession, property prices continue to increase and with banks preferring purchasers to include larger deposits, a savings plan is perhaps the only way that some people will be able to find their way towards purchasing a property.
A Great Savings Strategy
First Home Saver Accounts, known as FHSAs began in 2008. Originally, the federal government set out plans that expected 700,000 accounts would be opened by people wanting to save money towards their first property. Unfortunately, the recession hit Australia soon afterwards and many savers’ focus was distracted towards paying bills rather than saving towards their first home. The Australian Prudential Regulation Authority has insisted that just 38,500 FHSAs were still running recently.
ANZ and the Commonwealth Bank no longer offer these types of savings accounts.
One of the main advantages of opening a first home saver account is that the government adds a 17% interest contribution towards the first $6000 that you deposit each year. With the bank also paying interest at around 3%, and taxation at 15% instead of your marginal tax rate, it has proved over popular with some savers. The numbers are not high because the funds that you deposit must be left there for 4 years before you can withdraw the money. The withdrawals are tax-free, but the money can only be used to purchase your first home. Account holders must be at least 18 years of age and be able to deposit at least $1000 into the account every year.
How Gen Ys Have Benefited
To qualify for the government’s contribution, the initial deposit can be made late in year one and as long as the amount is maintained for 4 tax years, during the fourth year the account only needs to be open for one day before you can withdraw the funds and use them to purchase your property together with a home loan.
15,500 of the first home saver accounts are managed by the Members Equity Bank, so they must have seen an opportunity in the market to own around 40% of the current marketplace, because they have actively marketed the plan knowing that you need the funds to be in place for two years and two days to retain the full benefit.
These first home saver accounts have provided high returns at very low risk and if it gives people the opportunity to place a substantial deposit towards their first property, it was a good idea. 62% of the Members Equity Bank savers are under the age of 30.
Sensible people will meet with their mortgage brokers in Kwinana or in their local area well ahead of time; they are going to need their first mortgage so they can get a guide as to how much money they will need to save for the deposit and all of the other costs associated in purchasing their first property.