If you’re a single woman living in most capital cities, the government’s scheme allowing super to be used for first-time home purchase won’t be much help.
And if you are a couple on a low income, it won’t be much help either.
Big price rises and lower super balances will quickly erode any benefit for singles and young couples.
Last weekend’s pitch to voters in a last ditch attempt to turn around poor polling means t people can withdraw 40 per cent of their super, up to a limit of $50,000.
But to withdraw $50,000, you will would need super savings of $125,000 – a sum most don’t have until they are in their 40s.
And thanks to the super gender gap, which neither party is addressing in this election, a single women won’t be able to withdraw enough to make a difference.
According to calculations by Association of Super Funds quoted in The Financial Review, the average 30-34-year-old male has $51,175 in super, and could withdraw $20,470.
The average female, on the other hand, would only be able to withdraw $16,896 out of her $42,240 super balance.
The average couple in their early-30 s would have access to $37,366.
The average female, assuming a 5 per cent deposit is required, would need to find a home at around $330,000.
Superannuation Minister Jane Hume said after Sunday’s announcement by PM Scott Morrison she anticipates a ‘‘ bump’’ in property prices as a result of the measure.
The controversial pitch to let people tap their super comes as the downturn in Sydney’s property market gathers pace, with prices falling for the third month in a row in April to a median value of $1.1 million.
Speaking to The Australian Financial Review, Senator Hume said the government decided to limit withdrawals to 40 per cent of a person’s balance because it did not want Australians to ‘‘ empty their super’ ’ to buy a house.
With mortgage rates on the rise and no end in sight to the jump in the cost of living, emptying super may be the last thing a single or young couple should do.
Here’s what you need to do to take advantage of the scheme:
- You must have a separate 5% deposit to be eligible.
- Couples can access the scheme together if both members qualify.
- Buyers can only buy the property for owner-occupier purposes and must live in the home for at least 12 months.
- There are no age, property value or income thresholds.
You will need to apply through the ATO and the amount must be reinvested in the superannuation fund if the property is sold. If you don’t end up buying the home after getting an early release of super you must pay the amount back into your fund.
When paying it back you must pay back the initial amount plus any capital gain or loss from the sale of the property.
Lendi Group CEO, David Hyman agreed that the government needs to take steps to achieve more equitable housing outcomes across different income brackets including the adequate provision of affordable housing for those who are unlikely to achieve homeownership anytime soon.
He supports the government’s proposal and says: “The Coalition’s proposed Super Home Buyer Scheme steers in the right direction when it comes to addressing some of these issues. However, it is not without limitations.
“Allowing young Australians to dip into some of their superannuation to help them purchase their first home sooner doesn’t ultimately diminish their retirement savings – as under the proposed scheme the ‘borrowed’ money and any share of capital gain must be returned to the super fund once the property is sold – making this a potentially viable long-term strategy.”
He points out that ABS data shows that the median super balance for those aged between 25 and 34 years was approximately $25,000 at June 2020, so the proposed scheme would be more advantageous to first home buyers on higher incomes with greater superannuation savings.
Mr Hyman notes: “Allowing first home buyers to enter the property market using their superannuation is likely to stimulate housing demand, pushing property prices up even further and eliminating some of the benefits of dipping into your super in the first place.”
The McKell Institute and the University of South Australia recently published a report warning against the early release of super.
During their research they found that super for housing would lead to an increase in household indebtedness, cash invested in homeownership is likely to compound at a lower rate than that invested in superannuation and over time many individuals may end up worse off financially by diverting cash from their super accounts into earlier home ownership.
They concluded that: “Allowing individuals to make additional savings for a home loan deposit with the tax advantages of super may make financial sense. However allowing individuals to withdraw their mainstream super savings, intended for late retirement income, is a questionable proposed policy.”
Their research also found that an increase of $10,000 to $30,000 in savings would have no material impact on the number of people entering homeownership and that a much higher contribution of between $40,000 and $80,000 would be required.
The report also says that historically super has performed much better than the property market and so anyone who invests in property is likely to be worse off in the long run.
The McKell Institute’s report also warns that the ability to access super may also lead to property prices going up even further and would have a detrimental effect on their own finances.
McKell Institute Professor Chris Leishman said that he found it interesting that the Coalition’s proposal had a safeguard that the money would need to be paid back but notes: “The fundamental point is that the econometric modelling work we did for McKell does show a strong link between the volume of home loan finance flowing into the housing market and the house price growth rate.
“In turn, In turn, this demonstrates that it’s not so much the amount of money being withdrawn from super that is important, but the subsequent increase in borrowing/lending that this triggers, and the inflationary effect of that. Even with the provision that money withdrawn from super would be repaid later, the concept is that super is being used as an additional borrowing facility which then triggers even more borrowing from the banking sector for home loan finance.”
He is sceptical that the proposal would help new home buyers get onto the market and says: “Given the enormous house price increases seen last year, triggered by the very low cost of borrowing coupled with households’ appetite for taking on more debt on that basis, it is difficult to see how releasing super for home loan deposits can be a good thing for housing markets.”
Mr Leishman concludes by saying: “The last thing the housing market needs right now is for housing prices to be pushed up any higher by encouraging younger households to borrow from their future retirement income in order to increase their borrowing capacity from the banking sector now.”
Finder senior editor of money, Sarah Megginson says: “On the one hand the policy could help first home buyers get into the property market sooner. Owning a property is a common method of building wealth.”
She says that the policy comes with criteria and caveats: “For instance a key part of the policy includes a requirement for homeowners to return the inititial super amount they withdrew, along with an equivalent proportion of the capital gain or loss, when you eventually sell the property. This translates to an awful lot of government involvement in your household finances.
“For example, if you withdraw $50,000 and use it to help you buy a property for $600,000, and 10 years later you sell the property for $900,000 (a gain of 50%), you’ll be required to repay the initial $50,000 you withdrew from super, plus a portion of the $300,000 gain (the exact way the government would calculate this isn’t quite clear).”
Ms Megginson also advises that it’s very easy to just think of your needs today but any money you take out of your super today will affect your life down the track.
“You might think that’s a “future me” problem, but it’s proven that the earlier you start saving and investing for your retirement, the far more financially comfortable you’ll be when you leave the workforce.
The average figure the industry quotes for super returns over the long term is around 7.5% growth p.a., which means swiping $50k from your fund this year could see you miss out on decades of compounding wealth.”