Accessing your Superannuation to buy your first Property

NOTICE – UNPOPULAR OPINION

Using your superannuation to purchase your first home…

There has been so much chat around the new scheme where 1st time buyers could withdraw up to 40% of their superannuation, to a maximum of $50,000 to be used as a deposit.

When I first read this, I was shocked and blurted out some profanities at how silly and risky it was. However, after a few days of letting it digest, I can see some of the huge benefits.

I am aware that this could turn very bad for some people – but so can buying property without this scheme.

One scenario where I see this could benefit a first-time buyer is when the only thing holding them back is saving the deposit. They could have been paying rent for many years and never missed a payment, and this has reduced their ability to save the deposit quickly. The difference in rent and a mortgage repayment may be quite small. So, why should a 1st time buyer spend an extra 5 years trying to save a deposit to just help pay off an investors mortgage with their rent? By getting into a property 5 years sooner they would have paid off the mortgage more than the 50k they took from their super that they otherwise would have spent down the drain paying rent! That means they are in a better financial position!

Another way to look at it… what would you consider a better outcome – the 1st time buyer having their home paid off 5 years earlier and not relying on the government for accommodation or having a slightly larger super account but not having the property paid off. This correct answer is going to come down to what performs better over the long-term – your property or super.

Property can be highly leveraged, generally up to 90%. Any return on investment is then magnified 10-fold so they can potentially make much larger profits. Again, the buyer could make a lot more!

But what if the property goes down in value??? If the property goes down in value, so long as they keep paying their mortgage they are in no worse position unless they have to sell urgently.

The key risk I see here is when an urgent sale is required – broken relationships, loss of job etc. Due to the high entry and exit costs with property this is where they will lose out. However, this is just as negative if they bought a property without the first buyer scheme (the only difference is their super is 50k lower).

Generally, most 1st time buyers are going to be under the age of 45 years old or so. If they did lose this 50k in superannuation from buying a poor property, they should have the time to financially recover. Most financial stress I see from my clients is their lack of accessible savings – taking out some of your super does not affect this.

This could also be an incentive for the younger generation to move to major regional centres and help grow those economies as they can get into property sooner and get a better bang-for-buck.

I am not saying this is a great scheme – there are many inherent risks, and they are going to have to carefully flesh out rules and acceptable criteria.

However, I believe this has some merit, even more so if the property market grows!

Keen to hear your thoughts…..