Should first home buyers be able to dip into their super for a deposit?
Very few would argue that affordability is an issue for first home buyers. First-time buyer participation is at near-record lows. Recent figures from AFG show first home buyers accounted for less than 10% of the market in March.
The issue for many prospective first timers is saving for a deposit. With median house prices skyrocketing, saving a deposit is getting further beyond reach for many wanting to enter the market. This may be why HomeStart CEO John Oliver recently recommended a rather drastic plan.
Speaking to the Senate Inquiry on Affordable Housing, HomeStart CEO John Oliver has argued that first home buyers should have access to their superannuation to contribute to deposits for home purchases. Oliver said such programs already exist in other countries.
“We are aware of the Canadian Home Buyers Plan which allows borrowers to use up to $25,000 of their superannuation for a deposit and then repay the funds later,” he said.
Oliver said access to finance was as important a factor in housing affordability as supply and demand.
“It is ironic that a household in difficulty with their mortgage has the option to access superannuation to clear arrears, whereas a household in otherwise good financial condition cannot temporarily access their super for a deposit,” Oliver said.
Oliver’s idea garnered some high-profile support. Outspoken independent Senator Nick Xenophon has called for the government to support the idea.
“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,” Xenophon said.
Xenophon argued that the scheme has made a dramatic difference to housing affordability in Canada. He said it has safeguards in place which could be implemented in Australia, including the requirement to repay the super fund within 15 years of a home purchase.
“As HomeStart Finance said today, there’s something strange about being able to access your super fund if you are about to default on your housing loan, but you can’t access it to put a deposit on a home in the first place,” Xenophon said.
SAVE YOUR SUPER
But not everyone has cheered the proposal. In particular, the superannuation industry has questioned the merits of allowing first-time buyers to dip into their super. Australian Institute of Superannuation Trustees (AIST) CEO Tom Garcia said the solution to housing affordability doesn’t come from our superannuation funds.
“[Superannuation] is a key plank of the nation’s retirement incomes policy and should never be used for any other purpose than helping people save for their retirement… Removing even relatively small amounts of savings from the superannuation system would see many more Australians reliant on the Age Pension and significantly worse off in retirement,” Garcia said.
Placing more reliance on the Aged Pension could be problematic, considering pensions formed a part of the budget cuts announced by the Abbott Government. The 2014-15 Budget will see pensions indexed to inflation from September 2017 – in a bid to make these payments more sustainable to meet the demand of Australia’s ageing population. It is currently indexed in line with the higher of the increases in the CPI, Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index.
Superannuation is often not even enough as is, according to Garcia.
“Even when the superannuation contribution rate eventually reaches 12%, most young Australians will need every cent of their superannuation to achieve adequate levels of income in retirement,” he said.
BROKER INDUSTRY RALLIES
But mortgage industry figures have said the proposal can work, provided the proper stipulations are put in place. Mortgage Choice chief executive Michael Russell said the franchise brokerage had long called for a similar scheme in which first home buyers could access their super for a housing deposit, reducing the need for LMI.
“While lenders mortgage insurance has a crucial role to play in assisting first home buyers into the property market, if the premium can be reduced by lowering the loan to value ratio, then this would seem to be in the best interests of buyers. First home buyers should be allowed to invest part of their super in their own bricks and mortar,” Russell said.
Russell said the scheme should be put in place with the stipulation that the money will be reimbursed to the buyer’s super account either at the sale of the property or within 15 years, whichever comes first.
1300HomeLoan managing director John Kolenda also voiced his support for the plan, saying it could be a boon to first-time buyers, provided the proper stipulations were put in place.
The plan from Senator Xenophon deserves consideration and they can set parameters around it such as a maximum withdrawal from a super fund of $25,000,” he said.
Kolenda predicted that the plan could benefit not only the housing industry, but the superannuation system as well.
“If first-time buyers are allowed to access their super for a home loan deposit you might actually see people contributing more money into their fund, which will be beneficial to the superannuation sector.”
This article is from Australian Broker Issue #11.16. Download the issue to read more!