Saving for your first home takes time, effort and planning. It’s natural, then, to want that effort to be protected. If you’re using the First Home Super Saver Scheme (FHSS) , you’ve probably heard it can help your deposit grow.

But there’s also a catch: super money is generally invested in shares (aka stocks). And shares go up and down with the stock market . So, what happens if the market drops just before you withdraw?

In this article, we’ll explore how the FHSS works, where the risk lies, and how the scheme manages market movements. Hopefully, you’ll walk away with a deeper understanding of what this might mean for your first home deposit .

What is the FHSS?

The FHSS is designed to help first-time buyers grow their home deposit using superannuation.

Instead of saving through a regular bank account, you can make voluntary contributions to your super fund (up to certain caps ). These are extra payments, separate from the compulsory contributions your employer adds.

Over time, these contributions, along with any earnings calculated by the Australian Taxation Office (ATO) , can be withdrawn and put toward buying your first home. The idea is to give first home buyers access to the tax and investment benefits of super while they save. But because super is usually invested in the share market , it’s not the same as stashing cash in a savings account.

That’s where timing, market returns, and risk come into play, especially if you’re close to needing that deposit.

Why do some commentators worry about investing for a deposit through shares?

Saving for a home deposit is often a short- to medium-term goal. But investing in shares is usually better suited to long-term horizons. That’s why some people express concerns about the risk of investing a home deposit in shares.

Share prices can rise and fall quickly. And if you need to sell during a dip, you might get back less than expected. For example, imagine you’ve planned to buy in June, but the share market drops in May. You may still withdraw under the FHSS , but your balance might be lower.

This timing risk is what some commentators flag when discussing share-based saving strategies. Compared to this, traditional savings options, like high-interest savings accounts, don’t fluctuate in value. They can feel more predictable for short-term planning.

As we’ve said, investing through super can lead to growth. But growth often comes with volatility, and volatility doesn’t always suit fixed timelines. So, how does the FHSS fit into a home deposit plan?

Does the FHSS build your deposit through the share market?

Yes, at least in part. That’s because super funds invest in a range of assets, including shares. Many Australians are in a ‘balanced’ or ‘growth’ option by default. These usually have a large allocation to shares, both Australian and international.

Super funds also invest in other asset types, like bonds, property and cash. Each plays a different role and reacts differently to market changes. So, while shares often drive growth, they also introduce more ups and downs to your portfolio’s value.

Most super funds let you choose how your money is invested. That includes the option to switch to a lower risk option. This flexibility may help some people manage volatility as they get closer to withdrawing their deposit. But whether or not to switch depends on your situation and may come with some additional accounting or fees, depending on the super fund.

Can you lose money with the FHSS if the market crashes?

The FHSS has rules in place, but it doesn’t remove all risk. Like any investment, your outcome depends on timing.

If you're in a high-growth option and the market falls, your balance might drop too. That includes the value of your voluntary contributions . The biggest factor is timing. If you withdraw just after a dip, your deposit could be smaller than you planned. However, the FHSS has a few features that can help take the edge off market dips . Let’s look at how it works in practice.

How does the FHSS minimise the impact of a market crash on your deposit?

The FHSS includes features that help reduce the effect of short-term market drops. Here’s how the structure can soften the impact:

• Only part of your super is included . The FHSS only applies to voluntary contributions and associated earnings. You’re not withdrawing your full super balance , just the part you’ve added for your deposit.
• Your withdrawal isn’t based on real-time market returns . The ATO uses a set formula to calculate earnings, called a deemed rate of return. It’s based on a fixed rate, not your actual super fund performance. If the market crashes, this rate may still give you a steadier outcome. That said, the deemed rate also applies when markets do well. So, while it can cushion losses, it may also limit upside.

The impact of these factors looks different for each portfolio, and there are no guarantees. But these FHSS features can potentially help reduce the risk of bad timing taking a big bite out of your first home deposit.

What are some ways to reduce the risk to your FHSS savings?

Here are some ways you can manage how you use the FHSS.

You can adjust your super investment options

As mentioned, most super funds offer different investment options. Some people move to lower-risk options as they get closer to using the FHSS. This can reduce exposure to big swings and potentially help limit losses in the short term.

Treat it as one part of your plan

You don’t have to rely solely on the FHSS to fund your deposit. Some people use it alongside a savings account or offset account. That way, your deposit isn’t tied to just one investment path.

Plan your withdrawal window

While you can’t time the market , you can plan around your goals. If you know roughly when you want to buy, consider how your investment strategy aligns with that.

Understand the timeframes

Once your FHSS withdrawal is approved, you have 12 months to buy a home. So if the market drops, you don’t have to use the funds right away. And you can request an extension if needed. This gives you some flexibility to act when the timing feels right.

These steps won’t remove all risk, but they may help you feel more in control as you move toward your first home. And if you feel like you could benefit from some structured guidance, speak with a licensed financial adviser.

Focus on your next move, not the market’s

It’s smart to ask what could go wrong, especially when saving for something as important as your first home. And the FHSS can be a helpful way to boost your deposit, but it’s not without moving parts.

As we’ve said, the value of your savings can rise or fall with the market. That’s why understanding the rules, timeframes and risks matters.

You don’t need to predict the market. But knowing how the scheme handles market movements can help you plan with more confidence.