First Home Buyer Saver accounts

[The Red Baron]

Hi guys

Hearing about this Finanical Crissis and having a work meeting yesterday addressing the situation thought it was time to look at my own situation.

I have a block out in the the burbs on the coast of Perth, put down a decent deposit but still owe $180k on it. I don't have my head in the sand and known it has dropped quite a bit. In no situation to build on it for quite a few years yet and still living with the olds.

Been working a second job for past 2 years, was hoping to quit as 60hr a week is starting to get to me but being seeing the situation I think I might keep it.

The extra $500 a week I was looking at reducing the loan but now thinking about different options, like managed fund and dollar cost averaging over the next few years or the first home buyers account.

What is the feedback on this account? I know its 17% interest only on first $5000 but catch is 4 year time frame, but i think that will be around the time i'm ready to build.

cheers

 

[marg4000]

Catch is the time frame - 4 years - and can only be used to purchase first home, otherwise rolled into superannuation.

In your case, how would you feel if the "deal of a lifetime" came along in 3 years time and you could not access your money?

Think it through and get more information.
Marg

 

[The Red Baron]

I think I might have to get some more details.

If say 3 years time a deal of a lifetime does come up.. do I get my principal back and the 17% tax free contribution from government and 6.5% @15% tax from ANZ go straight to my super. Or if the whole amount goes into my super.

I'll have to find that out. If it's only the government contribution I could handle that 17% return is alot better than the -30% super funds around at the moment. But the entire amount would be make it that much harder as my deposit would be gone.

thanks

 

[LynnH]

Red Baron

You can't get any of the money out of these accounts before the 4 years is up - for any reason. And all of the money (including interest) either goes into buying a home or is rolled into your superannuation - you don't get to take any of it for personal use.

Personally, I feel that there are better ways of saving for a deposit - high-interest on-line accounts being one. Sure, they are not as tax-effective as the FHB Saver a/cs (or whatever they are called) - but you retain control of the funds at all times.

[This is not intended as financial advice - each individual's situation will be different and they must take their own circumstances into account.]

Cheers
LynnH

 

[NedKelly]

I have a block out in the the burbs on the coast of Perth, put down a decent deposit but still owe $180k on it. I don't have my head in the sand and known it has dropped quite a bit. In no situation to build on it for quite a few years yet and still living with the olds.

My take on the land. If you owe $180,000 and your interest rate is 8% it is costing you $14,400 per annum just to hold it. (plus a little council tax). If you can't build for 3 years it will cost you $43,200, and this is not tax deductible. The question is, will it go up by that amount in 3 years. I don't know what you paid but let's say you paid $250,000, it needs to go up about 6% a year to be at break even.

Unfortunately, you cannot easily get an income from land. Personally I would only buy land if I was to build on it immediately or it was really cheap.

You might want to review your options to sell it if I you are unable to build on it for a long time.

 

[The Red Baron]

Thanks for that.

I might actually be better putting the $500 a week reducing my loan and the principal as it is interest only. It is around 8% at the moment, getting charged a 0.25% extra construction loan.

I could build on it but might need a bit of help (joint venture from parents or brother). The second job is casual so won't help me out there. Parents are quite interested to help out though. I guess if I choose to build would get the $21k and $9k back from stamp duty I paid.

What I don't understand some people have built and selling for a premium on block and house price. I know finishing costs a bit too but their block would have only cost $230k, the 2 storey they choose was $230k and asking price $600k. Surely they must be dreaming in this market?

 

[urchin]

if you are not going to be building for a while, instead of servicing an interest only loan in a market with falling land prices you would be better off selling it at a small loss, putting the money into an appreciating (rather than depreciating) investment instead. i'd guess that, at this stage, there is a lot less downside risk in shares than there is in property. though i would be hesitant to put anything into shares that i plan on using in the next 5-10 years. in the long term, i think there are some excellent buying opportunities now but you have to be able to accept significant losses in the short term.

i really don't see any positives in an interest-only loan on a block of land that you are not ready to build on, though. it brings in no income and you only lose money on rates and interest. the only reason to do it would be expected capital gains but in the short-mid term that is far from a sure thing.

the first step would be to go and talk to a reputable financial consultant/accountant who has no direct interest in what you ultimately do with your money. a few hundred spent on consultations with a respected professional could save you/make you many thousands down the road. just dont get greedy and accept that it takes time to build wealth.

 

[urchin]

Thanks for that.
What I don't understand some people have built and selling for a premium on block and house price. I know finishing costs a bit too but their block would have only cost $230k, the 2 storey they choose was $230k and asking price $600k. Surely they must be dreaming in this market?

i would guess, yes, they are dreaming. it seems unrealistic to assume that they are the only ones capable of adding sums. if a plot of land is only worth 230 and the construction is only worth 230, someone would have to be pretty uninformed to pay 600. that is not to say that there aren't idiots aplenty out there, but i would guess most of them have been fleeced already

 

[NedKelly]

Thanks for that.

I might actually be better putting the $500 a week reducing my loan and the principal as it is interest only. It is around 8% at the moment, getting charged a 0.25% extra construction loan.

Do a thought experiment on this. Suppose you had the funds and managed to pay all the loan off within a year.

Now you have an unencumbered piece of land worth say $250,000.

If you had the money instead of the land you could deposit this in long term account and maybe get 8% interest per annum. So the land is still really costing you $18,000 a year just to hold it.

 

[belleran]

Just to open this up again. Does anyone know where I can find out which banks offer the First Home Saver account? The only one I am aware of at the moment is Members Equity bank.

I think the idea of not being able to access the money is what a few would be savers might need. If you start an account before the end of this financial year, you only have to wait three years. If this is the earliest you wanted to consider buying then the length of time is no problem. You don't have to buy at the end of the mandatory five years - you can save for longer should you need to. Sorry meant to say four years, not five.

 

[Sharpstone888]

Just to open this up again. Does anyone know where I can find out which banks offer the First Home Saver account? The only one I am aware of at the moment is Members Equity bank.

ANZ and CBA offer the FHSA. Both with no fees. ANZ has an interest rate of 4.0% whereas CBA has 3.75%. I'd go with ANZ.

Cheers,
Chris

 

[belleran]

According to Members Equity website they are offering 6%. With all of them the rate is variable.

 

[Belu]

NedKelly - can you show me a bank account yielding 8% at the moment? if so - consider me in!