The so-called first purchase solution allows us to use our supplementary pension savings to pay for our first home, both in the form of a down payment and as instalments on our mortgage. Some limitations apply and there are a few different ways to utilise this solution. Let’s take a look!
- The solution can be used over a 10-year period.
- The maximum withdrawal limit is ISK 500,000 per person per year, or a total of ISK 5 million.
- The 4% own contribution and 2% employer's contribution can be withdrawn, not accumulated return.
- You have to own at least 30% of the property.
- You have to apply for the solution within 12 months of signature of the purchase contract.
- Individuals who have not owned residential housing in the past 5 years can qualify as first-time buyers, provided certain conditions are met.
- If you change housing during the period, you need to update your application with the tax authorities.
How can I find out how much I can use?
First, we need to keep in mind that accumulated interest cannot be withdrawn, only your own contribution of up to 4% and the employer's 2% contribution.
We recommend that you start by reviewing your statements for the period you’re thinking of applying for. The statements are available in Landsbankinn’s online banking or app under “Pension” and “Movements” - just enter the period you want to look at. It’s best to look at each year individually to see whether you’re over or under the maximum annual withdrawal limit of ISK 500,000. Note that you need to look at wage periods rather than time of payment. This will help you decide which period you want to use. Remember that you can only use the solution for a maximum of 10 consecutive years. If you were working part time alongside school or made a significantly lower salary 6 years ago than today, it might be better to skip those past years and extend the period to make instalments on your mortgage in the future.
Let’s take a closer look and assume, for the purpose of this example, that you’ve contributed to supplementary pension savings over the past 6 years. In the table below, we’ve created an overview of supplementary pension savings by year.
Amounts in ISK
| Contribution | Available funds | RSK limit | Unused | |
|---|---|---|---|---|
| 2018 | 150,314 | 150,314 | 500,000 | 349,686 |
| 2019 | 211,304 | 211,304 | 500,000 | 288,696 |
| 2020 | 348,215 | 348,215 | 500,000 | 151,785 |
| 2021 | 356,998 | 356,998 | 500,000 | 143,002 |
| 2022 | 399,124 | 399,124 | 500,000 | 100,876 |
| 2023 | 594,245 | 500,000 | 500,000 | - |
| 2024 | 652,486 | 500,000 | 500,000 | - |
| 2025 | 671,246 | 500,000 | 500,000 | - |
| 2026 | 712,004 | 500,000 | 500,000 | - |
| 2027 | 735,124 | 500,000 | 500,000 | - |
| 4,831,060 | 3,965,955 | 5,000,000 | 1,034,045 |
We assume that you're applying to withdraw supplementary pension savings for the years 2018-2023 and to put future contributions toward mortgage payments in 2024-2027, a total of 10 years.
In the first 5 years, your contribution to supplementary pension savings is so low that you are far from fully utilising the annual limit of the first purchase solution - take a look at the far-right column. In 2023, your contributions to supplementary pension savings exceed the limit. In order to take better advantage of the solution, you may want to consider dropping the years 2018-2020 from the application period and adding more years to future payments.
Apply with “Skatturinn”
The first purchase solution is twofold. On the one hand, you can apply to withdraw funds to make a down payment on your first home and, on the other, you can apply to use the funds toward mortgage payments. You can apply for both aspects of the solution at the same time, provided all your papers are in order.
For the application, you’ll need:
- A publicly registered purchase contract
- A copy of your mortgage documents
The application is hosted on the website of the Directorate for Internal Revenue, Skatturinn. Be aware that you cannot apply for the solution until you have a purchase contract. We recommend that you do not figure on receiving the amount until the deed of sale payment takes place, generally around two months following take over. It’s good to inform the real estate agent of this when you make the offer.
Application process and disbursement
We check the status of applications with Skatturinn daily. Once Skatturinn has processed and approved your application, you won’t have to wait long for disbursement as that takes place every other day. The funds will be deposited to the account you specified in the application.
And that’s that! We hope this helps and wish you all the best in the search for your first ever home - exciting times! We are always here if you need help and you’re welcome to order a phone call from us at Investment & Pension Services. Good luck!
