Should first home buyers access their super for a new home?

Home ownership is a wish for many Australians. Some make it a reality, while for others it remains a dream. 

Residential property prices increased 1.7 per cent over 2014’s first quarter across Australia’s eight capital cities and territories, according to the Australian Bureau of Statistics. However, growth was higher in Sydney (2.3 per cent) and Melbourne (2.1 per cent), putting pressure on those looking to take out a home loan and buy their own properties.

While cutting down on everyday spending can make saving up for a home deposit easier, it’s easy to wonder if there’s a better solution as house prices climb. For instance, should first home buyers tap into their super savings in order to get their foot on the real estate ladder?

Independent senator offers “super idea”

Nick Xenophon, South Australian Independent Senator, has suggested would-be homeowners should access their super in order to obtain a slice of the property pie.

The senator will introduce legislative changes when the state’s parliament goes into session this spring that will allow first time buyers to use a proportion of the super savings towards a deposit for a home loan, after being inspired by a similar Canadian scheme.

Mr Xenophon said:

“With more and more Australians finding it difficult to break into home ownership, adopting the Canadian scheme would make a difference to many thousands of Australians each year.”

What are the existing options for Australians?  

Currently, Aussies can purchase property via their self managed super funds (SMSF).

However, such properties must be purchased as an investment, meaning fund members can’t live in the homes themselves, according to the Australian Securities and Investments Commission. This means that Aussies saving for their future can build up their investment opportunities, but they might still be out of pocket when it comes to purchasing their very first home.

SMSF property can be a smart option, given the inherent tangibility and understandable nature of real estate. However, Australians may find themselves locked out of their more immediate desires – namely, home ownership.

Should Australians use their super to buy property?

There are certainly benefits to using super to buy property. For one, everyday Australians will be able to build up their home equity in their properties.

If Mr Xenophon’s proposed legislation passes into law, housing affordability could improve if the Canadian system is anything to go by. Of course, housing affordability is dependent on a range of factors, making such outcomes difficult to predict. 

The flipside of utilising super to pay down a home deposit is that retirement plans could be negatively affected. Once Australians turn 65 and meet the Department of Human Services’ income and assets test, they’re eligible for the age pension. 

As of 2014, the fortnightly pension rate (after accounting for the maximum pension supplement and the energy supplement) was just $842.80 for a single person or $1,270.60 for a couple (visit the Department of Human Services for the most recent pension rate figures).

If people want to keep up their lifestyle or retire early (or both!), they’ll need a significant amount stashed away in their super to make up the shortfall. Capping the amount available for a home deposit could be a compromise, to ensure individuals don’t adversely affect their retirement plans when looking to step onto the property ladder.

RateCity Data Insights Director, Peter Arnold, said: 

“In my opinion it’s yet another band aid solution for high house prices, except more detrimental than first home buyer grants, as essentially it’s the same, but funded by first home buyers’ future well-being as they pay for it out of super.”

“The accumulation phase of super – typically the first-home-buyer time of life – is very important to retirement income, so taking money out at this point has serious future implications.”

So – the verdict is mixed! If you’re looking to buy property, be sure to run a home loan comparison.

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