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Accessing Super to buy a home?

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Scoey

Scoey

Tony Shaw (54)
With the federal election looming, there has been a lot of chat about how difficult it is getting for people to enter the housing market.

I own (Read: am paying off) my own home but still I often wonder why we can't access our superannuation to buy our first home? My knowledge of economics is very limited so I thought I'd post in the only internet forum I'm a part of and see what the brains trust here think. I know super is for retirement, but hear me out.

The ultimate goal is twofold: To buy and pay for my first home (primary residence) during my working years AND build and grow my superannuation to a point that I can comfortably retire (the earlier the better).

When I bought my home I did what most first home buyers do: saved a deposit, approached a lender, got a mortgage and bought my home. Here's the thing though, I have enough money in my Super to pay for my house outright. If I have enough money, why should I have to borrow hundreds of thousands of dollars from a bank just so that I can own a home? Obviously if I just took that money from my Super then I'll have to work until I'm about 90 to be able to retire. But I don't want to just take the money.

Why should I have to go to a bank for a loan? I have the money, why can't I just take out a loan against my Super?

Here's an example:

Loan amount: $350,000
Loan type: Principal & Interest
Loan Term: 30 years
Interest Rate: 8% (I know that's high at the moment but it won't always be this low and 30 years is a long time)
Repayments: $1,185.00/fortnight
Total Interest Payable: $574,146.00
(Source: https://www.cua.com.au/tools-and-services/calculators/home-loan-repayments-calculator )

So for me to buy a $350,000 home I will have to pay a bank over half a million dollars for the privilege.

What I propose is that instead of just taking $350k from my Super and leaving it at that, I take the $350K and over the next 30 years I pay $1,185/fn into my Super on top of what my employer and I already pay.

I understand that basically setting my Super back to the start mid way through my working life will have a big impact on the final value at retirement but am hoping that by essentially paying myself the interest that I would have paid a lender (ie $574,146.00) as well as the principal then I would offset this impact?

Not to mention that I would be immune to interest rate rises and have far more certainty with regards to repayments etc than I would in a standard variable rate loan with a bank.

I don't think this should be an easy thing to be able to do and there should be significant safeguards in place but if it works then it should be something that is looked at. As a starting point, a minimum of 20% deposit should be required etc.

What do you reckon? Does it have legs or is it nonsense?
 
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David Codey (61)
IF, you had 20% deposit, and 80% in your super fund, then you don't need to access your Super to buy a home.you can easily get finance, and afford it.
So what's the point?
 
Scoey

Scoey

Tony Shaw (54)
The point is not paying $500,000 to a bank. But yes I see what you mean, I started this thread as a way to make it easier for people to enter the housing market and ended up talking about me saving a shitload of money.

I think one of the biggest difficulties facing people trying to break in to the market is their own expectations.

Using my own example again, I looked at what my wife and I could afford on my wage alone (for when we have kids) and at a moderately high interest rate and then set about finding a home that we could afford. It's not flashy and it's not in a capital city but my wife is now at home with our two kids and we are ok.

What I think a lot of first home buyers do these days is think about what they want, where they want it and then when they realise that it's 2-3 times what they can afford, they cry foul and claim that it's impossible for them to buy their first home.

When potentially borrowing from your Super, you will obviously be limited by how much you have. Saving yourself half a million dollars of interest is a big incentive to going this way so instead of them thinking that they need $700k for their first home and they they will never be able to afford it, this option may temper their expectations somewhat and get them looking more at what they can actually afford which is a better outcome for everyone.
 
Braveheart81

Braveheart81

Will Genia (78)
Staff member
If everyone can access their super to buy a first home it just puts more capital into the market and jacks up prices.

It's like the first home owners grant didn't actually improve affordability. It just pushed up prices because first home buyers could afford to bid $7k or $14k more dependong on the grant.

Borrowing the money from super and paying it back with interest is interesting and not really something I've heard suggested before. I guess the issue is what happens if you default? Does that make your public offer super fund basically just a lender who has a legal obligation to chase you for the debt? If it is an SMSF are you responsible to chase yourself?

The fundamental problem is that super is about retirement savings and is concessionally taxed. If you could use that money earlier to buy property it would encourage people to put more money in there with the concessional tax on offer purely in order to buy a first home. So taxpayers would be footing the bill to a greater degree.
 
Scoey

Scoey

Tony Shaw (54)
Braveheart81 said:
If everyone can access their super to buy a first home it just puts more capital into the market and jacks up prices.
Click to expand...
I did think about this and I guess I may have naively thought that this wouldn't be something that everyone would do. Hence the, make it somewhat difficult to set up, bit. The 20% deposit thing was part of that. Make it difficult to do but given that it is a reward in itself it would be worth the extra effort.


It's like the first home owners grant didn't actually improve affordability. It just pushed up prices because first home buyers could afford to bid $7k or $14k more dependong on the grant.

Borrowing the money from super and paying it back with interest is interesting and not really something I've heard suggested before. I guess the issue is what happens if you default? Does that make your public offer super fund basically just a lender who has a legal obligation to chase you for the debt? If it is an SMSF are you responsible to chase yourself?

The fundamental problem is that super is about retirement savings and is concessionally taxed. If you could use that money earlier to buy property it would encourage people to put more money in there with the concessional tax on offer purely in order to buy a first home. So taxpayers would be footing the bill to a greater degree.
Click to expand...

I guess that I considered that if you default then you only impact upon yourself. You put yourself in a position whereby you would need to potentially sell your asset in order to fund your retirement. The asset should keep growing in value so I hope that it would still add up but I expect that going down this path would leave you retiring in a worse position than if you had not defaulted in the first place.

The concessional taxing of Super is something that is already taken advantage of and I guess that I didn't consider it a big deal to widen the spectrum of folk that can take advantage. Ie someone nearing retirement, salary sacrificing their entire wage into their super and then drawing an allocated pension from the Super to live on for the last however many years they choose to work for.
 
Eyes and Ears

Eyes and Ears

Bob Davidson (42)
Another significant issue is diversification. Australians already have more than half their wealth in property which is well above what occurs in other countries. Being allowed to access super for your first home would lift this percentage even further and would create a significant burden to the Age Pension if there was a market correction in the housing market.
I also don't like the end possible outcome that many would be forced to sell their family home at retirement age if this was their only asset at age 65 available to fund their retirement. It also introduces some complexity around the means testing for the Age Pension. However I am sure that could be resolved.
Scoey, I think your situation is unusual that you have enough in super to pay off your mortgage. This would not be common for those under 45 on modest incomes living in the major cities of Australia.
However maybe there is a stronger argument for looking at this as relief in certain hardship cases.
 
Braveheart81

Braveheart81

Will Genia (78)
Staff member
Yeah, I can't work out how Scoey has so much Super at his age!

Must have started full time work when he was 7!
 
Scoey

Scoey

Tony Shaw (54)
Good points Eyes and Ears. Thanks.

I am aware that I am in the minority here. Which I think is part of the problem. I don't live in a major city which means it's not my super balance that is larger than average but more my mortgage which is lower than average.

A (younger) person's super balance is pretty proportional to their income level. So if they bought a house this way, they would be likely limited to a house that is proportional to their income level. This would go some way to reducing the amount of wealth we have tied up in real estate and also reduce the amount of people living in mortgage stress wouldn't it?

I don't know if it could ever work, and it would be up to smarter people than I to work out how it could work. It just seemed like a good idea to me.
 
Scoey

Scoey

Tony Shaw (54)
Additionally, the fact that I am in the minority would probably mean that this is not something that the masses would take advantage of, meaning it probably wouldn't have a material effect on house prices a la, the first home buyers grants etc.
 
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David Codey (61)
You might also be costing yourself considerable $$, in opportunity cost.
Most super funds, invest in stocks,property & cash.
Usually cash is the lowest return of the 3.
look back at your super fund earnings over the last decade, I'd be disappointed if it didn't earn at least high teens a number of times.
You are better off earning higher returns in your super fund, and paying mortgage interest to the banks,than limiting your super funds earnings to mortgage interest rates only, IMO .
In any event,diversity is always a prudent option.
 
Scoey

Scoey

Tony Shaw (54)
Thanks ILTW, that's pretty much the half million dollar question and what I really had no idea about. Aside from the glaringly obvious, "How is it administered" question, there seems like there's probably a big hole in my idea somewhere I just don't have the knowledge to see it.
 
boyo

boyo

Mark Ella (57)
I have several issues with this idea:-
  • Super' is for your retirement, not to buy a house
  • The tax implications
  • Would you really be disciplined enough to pay your super' rather than your mortgage? It has similarities with a renter investing the difference between their rent and a fictitious mortgage
 
Scoey

Scoey

Tony Shaw (54)
boyo said:
I have several issues with this idea:-
  • Super' is for your retirement, not to buy a house
  • The tax implications
  • Would you really be disciplined enough to pay your super' rather than your mortgage? It has similarities with a renter investing the difference between their rent and a fictitious mortgage
Click to expand...

You've used the words 'you' and your' in your list of issues so I assume you are asking me personally. If you're speaking more generally then I really can't answer the third point, I can only speak for myself.

1. Yes super is for retirement but part of what I was hoping to have answered is whether my super balance would be better or worse off after doing this. If it's worse off then I wouldn't think it's a good idea either. So using it to buy a house isn't an issue if you can still use it for retirement.
2. ???
3. Yes. It has similarities to that scenario but it's clearly not the same. I don't know how it would be set up but as I said earlier, it would need to be something that isn't easy to do, I don't think it's for very tom dick and harry but for those that could make it work, I think it should be an option.
 
boyo

boyo

Mark Ella (57)
You and your can be either singular or plural - therefore it can be directed at you or taken generally.
As mentioned previously, super' is taxed at a concessional rate, therefore using it for an after-tax endeavour may have tax implications.
 
ACT Crusader

ACT Crusader

Jim Lenehan (48)
This issue has been in the public debate previously. Senator Nick Xenophon was leading it. He even talked about introducing a private members bill based on the Canadian scheme that allows access to retirement savings for a deposit only. It had some stringent rules attached, a big one being about repaying back into your savings to ensure the integrity of the intention of a super scheme.

If housing affordability and the whole negative gearing issue takes off in the election campaign and Nick is out there campaigning hard - he wants another Senate spot, you never know it might find its way back in the debate.
 
Runner

Runner

Nev Cottrell (35)
Try the supply side issue about housing affordability and local council zoning rules which are restrictive to changing world.

As said before accessing super just lets you have more money to bid and if everyone did then it would only make housing even more expensive.
 
boyo

boyo

Mark Ella (57)
Scoey

Scoey

Tony Shaw (54)
I didn't watch the people's forum so I don't know what these tweets were responding to but what I proposed was not to use my Super to buy a house thus leaving me with a house and no super.
I had proposed to borrow from my super to buy a house leaving me at retirement age with a house and my super.

I agree it stupid to buy a house with your super.
 
boyo

boyo

Mark Ella (57)
[quote="Scoey, post: 841989, member: 6951"I agree it stupid to buy a house with your super.[/quote]


You wouldn't be able to buy anything with my super'.
 
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