Super home buyer scheme: what you should know before considering it

The long-proposed scheme of first home buyers dipping into their super to pay for a deposit may come to fruition, thanks to a pre-election promise from Scott Morrison on Sunday if the Coalition are re-elected.

Scott Morrison has suggested first home buyers will be able to access a “responsible amount” of super to be put towards a home deposit under the proposed Super Home Buyer Scheme.

But how exactly will this scheme work, and why are experts suggesting this could do more harm than good for both first home buyer super balances and the housing market?

How does using your super for a house deposit work?

The latest announcement from the Coalition would see first home buyer owner-occupiers able to access super for housing. The home buyer would need to live in the property for at least 12 months to qualify, meaning that investors may need to consider alternative options.

First home buyers may be eligible to withdraw up to 40% of their superannuation, preventing buyers from completely draining their retirement nest egg. The amount that may be withdrawn is capped at $50,000 per person. This means for a couple looking to take advantage of this scheme, they could pool together their withdrawals and add $100,000 to their deposit.

The scheme – if the Coalition are re-elected – would begin 1 July 2023. There are no requirements around age, property value or age, or applicant incomes.

Eventually if the property is sold, the invested funds withdrawn from the super account would need to be returned, including a share of capital gains. 

Summary:

• First home buyers can withdraw up to 40% of super balance
• Withdrawal is capped at $50,000 per person. 
• If property sold, share of capital gains to be returned to super balance

What are the benefits and risks of using super for a house deposit?

The obvious benefit of taking funds out of your super balance to use towards a house deposit is that it may make getting a foot on the property ladder easier. This could be a helpful option for some first home buyers struggling to save for a deposit themselves with current cost of living pressures and low wage growth.

However any money withdrawn from your super balance may not be working for you to grow your savings. While you may earn capital gains through this scheme, it's worth keeping in mind that your property selling for a profit is never guaranteed and depends on the market. 

There is also the question of whether first home buyers – typically young Australians – even have enough super funds to make this scheme worthwhile.

According to AMP, the average super balance for men aged 30-34 is $58,035, and for women is $45,968. This means that men on average would be dipping into their retirement funds for an extra $23,214 towards a home deposit, and women would on average be able to withdraw $18,387.

How much could you withdraw from super balance for a deposit?

Source: AMP.com.au, RateCity.com.au

Due to the Gender Super Gap, under this scheme women applicants may also have access to fewer funds than male first home buyers.

When you consider that a 20% deposit for a median priced unit in capital city like Sydney is a six-figure sum, the amount a young Australian may have access to borrow may not go as far as they expect towards getting a home loan.

And speaking of house prices, unfortunately a scheme like this could have the undesired effect of lifting prices nationally. For a previous proposal of a super-withdrawal scheme for home buyers, Industry Super Australia released an analysis that showed the policy may increase median property prices by 8-16% in capital cities at the time of publishing. 

Superannuation Minister, Jane Hume, conceded the super for houses scheme could drive up prices in the short-term, stating in an interview with ABC’s Radio National: “…So, I would imagine in the short term, you might see a bump in house prices but that doesn’t play out the long-term benefits of more home ownership.”

Case Study: Accessing super for housing hiking prices in New Zealand

It’s worth keeping in mind that while the debate around accessing your super for a home deposit continues, this is a policy that has been in place in New Zealand for around five years.

New Zealand first home buyers are able to draw down on their superannuation account through the scheme KiwiSaver. Eligible applicants make regular contributions towards the account, between 3-10% of their salary.

In an interview with SBS News, New Zealand-based economist Shamubeel Eaqub noted that while this scheme has helped more New Zealanders to buy a first home, the scheme is not without its problems.

"The hindrance, of course, is that it adds to demand. In the last year, 25% of house sales in New Zealand went towards first home buyers using KiwiSaver accounts, so the demand for housing, while we are not building enough, is pushing up house prices even more."

What schemes are available now to help first home buyers?

There are currently several home buyer schemes available to help would-be buyers purchase their first home, including one that involves your superannuation fund.

• First Home Super Saver Scheme – Eligible applicants make additional contributions into their super with the returns to be put towards a property deposit.
• First Home Loan Deposit Scheme - For new and existing homes, the government acts as a guarantor on home loan, allowing eligible applicants to purchase a property with only a 5% deposit without paying Lender’s Mortgage Insurance.
• New Home Guarantee – For building or purchasing a new home, the government also acts as a guarantor on home loan so eligible applicants can purchase property with only a 5% deposit without paying Lender’s Mortgage Insurance.
• Family Home Guarantee – Government acts as a guarantor on home loan, allowing single parents to purchase property with only a 2% deposit without paying Lender’s Mortgage insurance.

For more detailed information on the current home buyer schemes available, please read our latest guide.

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