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If you're considering purchasing property with a partner, you need to consider what could go wrong, and be prepared for the worst.
Blogger: Richard Symes,CEO, Credit Repair Australia
The inaugural Abbott--?Hockey Federal Budget was tough on many Australians, with the introduction of a $7 co-payment to visit doctors, unfreezing of the fuel excise levy and cuts to university funding certain to hurt many.
For Australians looking at buying their first home, there was also a dosage of pain, with the axing of the First Home Saver Account scheme. The scheme was an initiative brought in under the initial Rudd government to help people save for their first home. It offered first home buyers more incentives to save for that first property, providing a concessional tax rate of 15% on interest earned in the account, and co-contributing 17% on the first $6,000 deposited by savers each year (essentially, providing $1,020 free). Alas, the scheme is now poised for relegation to the history books.
So what does this all mean for your first home buyers using the scheme? Well to put it simply:
• If they had opened an account prior to 7.30pm on Tuesday 13 May, the Government will continue to contribute on deposits made until 1 July 2014. They will continue to receive the maximum co-contribution of $1,020 if they deposit $6,000 for the 2013/2014 financial year. Any deposits after July 1 2014 will no longer receive the co--?contribution.
• If they opened a First Home Saver Account after 7.30pm on Tuesday 13 May, they will not receive the Government’s 17% co-contribution nor the 15% tax concessions.
• First Home Saver Accounts will no longer receive tax concessions after 1 July 2015. This means any interest they earn on their account for the 2013/2014 and 2014/2015 years will be taxed at 15%, before reverting to their normal income rate post 1 July 2015.
This initiative that the Rudd Government implemented in 2008 was predicted to have 750,000 accounts opened over a 4-year period. Reports have shown that as of December 2013, only 46,000 accounts were actually opened, with poor promotion and certain stringent conditions blamed for the poor take?up. That said, one of the prime benefits of the scheme was that it demonstrated a sustained pattern of responsible saving to potential lenders, important when determining the size and terms of any mortgage. With many first home buyers being relatively young, and less likely to posses a long financial history (for instance, paying utility bills or credit cards over several years), this benefit carried some weight with many lenders.
So, those who were lucky enough to have capitalised on the scheme should note that the tables have turned somewhat – the scheme isn’t so prosperous anymore, and it’s recommended that they find a new saving strategy that also shows lenders that they are responsible savers.
Without the co-contributions from the Government and the handy tax concessions, there is little incentive to continue on the scheme. However, there are several other ways you can demonstrate to would-be lenders that you are an efficient saver and financially responsible. My savings tips for you are:
1. Arrange a savings plan – Consider setting aside a separate account for the sole purpose of demonstrating fiscal responsibility – regular deposits, whether big or small, can accumulate rapidly over time, and carry weight with many lenders.
2. Get budgeting – Assessing your financial situation and writing it down can help with saving – it is much easier to assess where possible cuts can occur when expenses are printed out in black and white, and you understand where the cash outflows are going.
3. Additional income – If the lure of owning their own place is sufficiently strong, consider other ways to earn additional income. e.g. an part-time job, or having garage sales, can generate additional income that can be put directly towards savings.
4. Save your $5 notes – A classic method that is tried and true, though using notes rather than coins! At the end of each day, open your wallet and place any $5 notes into a secure tin. You are unlikely to miss the occasional $5 note; however, you’ll be surprised how they rapidly add up. When the tin is full, deposit its contents into the savings account, and do not detour to go shopping on the way! The bigger your savings balance, the better it looks to a lender.