Super Guarantee rise and the single parent home scheme start today: but beware of the fine print

Today two government initiatives kick off, designed to provide Australians with a more secure future, but not everyone is guaranteed to be a winner.

Changes to the Super Guarantee

From today, employers will have to put a minimum of 10 per cent of every eligible employee’s base salary into their super fund – up from 9.5 per cent. After a pause since July 2014, the super guarantee is scheduled to rise 0.5 per cent a year until it hits 12 per cent in July 2025.

However, people who are on a package salary, which has been negotiated as a total amount, inclusive of super, could see a decrease in their take home pay instead.

Sally Tindall, research director at RateCity.com.au, said: “The increase to the super guarantee will help millions of Australians build up their nest eggs, which is fantastic news.”

“However, if you’re eligible for the increase, it’s worth double checking who is paying the bill,” she said.

“Most people are likely to find their employers are footing the bill for the extra super, but for some employees, it could come down to the wording of their employment contract.

“If you’ve negotiated a ‘package’ salary which includes the company’s super contributions in the total amount, there’s a chance your company will cut your take home pay to fund this super increase.

“The super guarantee is set to increase by half a percent for the next four years, so while this year’s pay cut might be small, by the end of 2025 it will start to add up.

“If you’re affected adversely by this super change, use it as an opportunity to take your pay packet back to the negotiating table,” she said.

Super guarantee – scheduled changes

Note: the above rates are for the general Super Guarantee as outlined by the ATO. 

Family Home Guarantee

The Family Home Guarantee starts today, which helps eligible single parents buy a property with a deposit of as little as 2 per cent, without having to pay lenders’ mortgage insurance (LMI).

The program provides 10,000 places over four years, however single parents must earn less than $125,000 to qualify. They also need to buy a home below the scheme’s property price caps (see list below).

RateCity’s Sally Tindall said: “This is a well-meaning scheme but the property price caps are unrealistic for many families, particularly in hotspots such as Sydney and Melbourne.

“Single parents looking for a backyard for their kids will be limited for choice in any capital city.

“While the scheme has good intentions, the real problem families are facing is escalating property prices. Tackling the larger problem of housing affordability is likely to provide more widespread relief,” she said.

First home loan deposit scheme

Another 10,000 places will also become available today in the First Home Loan Deposit Scheme, which allows first home buyers to buy a property with as little as 5 per cent deposit without having to pay LMI. 

Sally Tindall said: “Getting into the property market ahead of schedule has its perks. You can stop paying rent and potentially take advantage of any capital growth after you’ve bought.”

“However, if you jump into this scheme, be prepared for the toast to fall butter-side down. If property prices stagnate, or drop, and you’ve bought at the peak, your sliver of equity could easily evaporate.

“If you buy with a small deposit, be prepared to pay more in monthly repayments because you’re likely to have a larger loan. If rates rise, which they’re expected to do, that cost will be amplified because you’re carrying more debt,” she said.

Property price caps: first home loan deposit scheme and new home guarantee

Median property prices in capital cities vs caps

Pros and cons of buying with a small deposit

Pros

• Get into the market sooner without having to pay lenders mortgage insurance.
• Avoid paying more for property, if prices rise even further.
• Stop paying rent and redirect that money to the mortgage.
• Potential to benefit from capital growth in the property.
• Security of where you live and send your kids to school without having to worry about the landlord not renewing the lease or selling the property.

Cons

• Mortgage repayments are higher so you’ll pay more each month.
• If rates rise, the repayment hikes are amplified on a larger loan.
• Little buffer if things don’t go to plan.
• If property prices fall, you could find yourself in negative equity, owing more to the bank than your house is worth.
• You would stop receiving rental assistance, if you were receiving it as a single parent.
• As a property owner, you would start paying for extra expenses such as council rates, strata (in an apartment) and maintenance.

Alternative options

• Buy with a family member or potentially even a friend.
• Rent-vest – i.e. buy a property elsewhere as an investor, while you rent where you need to live.
• If you don’t have family close by, consider moving somewhere cheaper.

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