Hi, I’d like to ask the industry experts on simplyaskit about their opinion on the discussion about first home buyers being able to tap into their superannuation as a means to come up with the deposit to buy their first home. Is it a good idea and should there be any conditions or restrictions to accessing their super?
Hello Sophie. It is a very challenging question that you ask. On one hand there is "it is my money, why can't I use it" question. Then on the other hand, the superannuation funds are needed for your retirement.
While as a Mortgage Broker, I will admit having access to Super funds would make it easier for me to write a loan, I am going to say that I am against this idea.
Putting a couple of things in perspective, to have sufficient funds in superannuation to do this would require at least 10 years in the workforce. If this is the only way to demonstrate savings, then potentially the loan is unaffordable for that individual.
What the lobbyists should be working on is the abolition of Stamp Duty. This is the most unfair tax ever, where the ones who can afford a home loan pay double tax ( we already pay based on our income)
There are arguments that this will just push up Vendor demands however market conditions would quickly see this disappear.
If you would like to contact me for any additional advise ( from a 40 year professional) then I would be happy to chat one on one.
Customers First Mortgages & Insurance.
1300 ASK KEN
Have to say in all my years hosting money programs on radio 2UE and 2GB this question came up without fail every single month. I typically have a different view to many in the superannuation space.
First let me say that super is precious and the fact it can't be touched until retirement and thus it's left to compound (Einstein's eights wonder of the world) is a real feature of the AU retirement system. It's an amazing way for every day Aussies to have financial security in their later years.
That being said, the security that comes from having your own home and a roof you own over your head also gives people massive comfort.
So all that being said, I think with careful management allowing people to access some of their super to buy their FIRST home would benefit the wider population, with come key features:
1 - this withdrawal is offered once and once only
2 - the home loan should have a maximum LVR of say 80% - to provide some extra protection and make it easier to afford and thus reducing the risk of loan default
3 - Loan should be a Principal and Interest loan ie no interest only
4- there should be a cap on the value of the home indexed to the state it's purchased in
The difficulty for people to get into the property market is more a macro issue. If you assume property doubles every 15-20 years that's an increase of say 6.6% every year - don't know how many employers give their staff that or more as a pay rise every year so as a result for many the dream of home ownership slips further and further away every year. Maybe a one off helping hand from super can help correct the imbalance. It just has to be done very, very carefully.
Look forward to seeing others view points.
As a millennial who has built wealth through investing in property I don't believe first home buyers should be able to access their super early to fund the deposit to purchase a property.
I say this for many reasons, firstly super was introduced in Australia in the 1800s as an employee benefit scheme that was later revised to help the government cope with the ageing demographic which also saw the introduction of the Old Age Pension Act. Super enables people that have an inability to or are unable to save the financial support they need during their retirement. By releasing super to fund the deposit of a first home means that the very reason super was created is being diluted.
If a first home buyer wants to utilise their super to invest in property then they should do so by setting up a Self Managed Superannuation Fund (SMSF) so their retirement is financially protected.
Should they wish to purchase a property outside of super, there are plenty of strategies to enable them to do so. My concern is that there are two main reasons why first home owners cannot afford to purchase a property and fund the deposit and that comes down to lack of advice available in the market place and also a lack of discipline by first home buyers as they cannot delay gratification and therefore have an inability to save.
Now if they were to release their super, the majority of people that are first home buyers won't have enough to cover the deposit or the stamp duty and legal costs associated with purchasing. If the government really wanted to help first home buyers they would remove stamp duty and only charge land tax for investors that had multiple properties, as stamp duty concessions are pointless and often you have to spend a significantly greater amount of money to gain a very minimal rebate. I also firmly believe the government should be integrating into the education system knowledge around investing and budgeting, which is the first step to creating wealth, to help assist both current and future generations of first home buyers.
If a first home buyer were to purchase property within 20km's of Sydney CBD for under $700K for a one bedder, they would need approximately $35K for a 5% deposit and $26K stamp duty, $2K legals totalling $63K. I question how many first home buyers would have this amount in their superfund to begin with. These figures are much more achievable if the government where to remove stamp duty.
I believe that until the government does take a serious look at removing stamp duty then first home buyers also need to review their expectations and be realistic about what they can financially afford to buy as opposed to what they want to buy. They could also look at interstate or international options to increase their savings more rapidly to be able to invest back into the Sydney market and then in a couple of years into the home they really want.
Accessing their super won't remove the problem, it is an ineffective bandaid solution at best.
If the idea that allowing first home buyers access to their superannuation balance will improve housing affordability then I think it's a bad idea. The housing problem is a lack of good supply coupled with infrastructure constraints. The influx of foreign buyers is certainly having an impact on the demand side with some estimates showing foreign buyers are >20% of all transactions.
Great question Sophie
Conceptually I'm in favour of first home buyers having the ability to access their superannuation to buy their first home ... with a few conditions though.
From the day we start working a percentage of our income is paid into a superannuation fund that is controlled by a third party. We, therefore, rely on a third party to invest our funds wisely in the hope we have the funds to be financially secure in our later years. The Federal Government would prefer we are all financially secure as opposed to relying on government funding and pensions.
So unless you’ve developed your own superfund and can control your investment, your superannuation contributions will be in the hands of your employer's nominated superfund or the superfund nominated by a financial planner and the associated fees. In most cases it is financially rewarding however as many have seen, there are risks.
I don’t subscribe to the theory first home buyers having access to their super will inflate property prices even further. I’d suggest the government plays a bigger role in housing affordability by creating infrastructure projects outside the capital cities and a foreign buyer policy that is controlled and adhered to.
Will the government remove or reduce stamp duty for first home buyers – it’s revenue, so I'm not so sure.
Back to the question, allowing first home buyers access to their super may:
• Provide the hope many are craving
• Give them the comfort of owning their own home instead of paying rent and being controlled by landlords and property managers
• Encourage people to take more of interest in superannuation at a younger age – that can only be a good thing as they may look to contribute more or seek to ask more questions on how their funds are invested.
• Allow them to start building a property portfolio and perhaps create the equity and assets to limit their reliance on future governments in later years
• Give them some control of how their superannuation’s funds are invested.
There does, however, need a number of conditions to the process of buying their first home and the home loan policy. I’d suggest
• The property has to be valued by an independent property valuer. Lenders lend on the lower of the purchase price or independent property valuation so this condition mitigates paying overs.
• The loan must be principal and interest
• Lenders to apply a higher serviceability calculation to ensure the first home buyer can comfortably meet the loan repayments now and in the foreseeable future
• I agree with Damien’s comments above in terms of a purchase price cap and for it to be a one-time only offering.
There are many more reasons why we should help as past generations have had access to assistance by either government or lending policies of the time.
Certainly some varying views and opinions