Introduced as an election policy in 2007, and available since late 2008, the FHSA was dumped earlier this week in the federal Budget.
While the account provided savings initiatives, homebuyers had to lock money away for four financial years or else risk having the money roll over to their superannuation fund.
Even after promises from former treasurer Wayne Swan to broaden the scope of flexibility, consumer complaints fell on deaf ears and uptake of the accounts stalled.
Despite favourable rates and government contributions, just 46,000 accounts were opened by the end of last year, with the total balance of $521.5 million.
Before this week’s Budget, the Real Estate Institute of Australia (REIA) wanted the government to at last provide some flexibility with the scheme, but instead the government scrapped the idea altogether.
“We would like to have seen the scheme reviewed and improved rather than simply thrown on the scrap heap because of an initial low uptake,” said REIA president Peter Bushby.
“With homeownership in Australia declining and first home buyers finding it increasing difficult to enter the housing market, this will not help the situation.”
Corporate spokesperson for Mortgage Choice, Jessica Darnbrough, told Real Estate Business that while the previous FHSA model was flawed, there was still room to further assist first home buyers.
"It was fairly inflexible and required first home buyers to save for at least four years. According to our Future First Home Buyer survey, more than 80 per cent of potential buyers would look to buy within two years of starting to save for a property. As such, the four year time period associated with the First Home Saver Account would not have suited.
"Secondly, the government capped its contributions at a maximum payment of just $1,020 a year. Considering the price of housing these days, few home buyers would have seen this contribution as 'significant'."
New accounts created from 7.30pm, Tuesday 13 May 2014 will not be able to access any concessions or the government contribution.
Existing account holders will continue to receive the government contribution for personal contributions made during the 2013/2014 income year.
Tax and social security concessions will cease from 1 July 2015, as will restrictions on withdrawals.
Existing account holders will continue to receive all tax and social security concessions associated with these accounts for the 2013/2014 and 2014/2015 income years.