Using super for house deposits would worsen affordability, super group says

author-avatar By on March 15, 2021
Using super for house deposits would worsen affordability, super group says

Analysis from a superannuation body released today suggests using super for house deposits could worsen housing affordability.

According to the The Association of Superannuation Funds of Australia (ASFA), using super for housing would "put significant upward pressure on house prices and exacerbate housing affordability concerns for low-income earners."


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you.

ASFA CEO Dr Martin Fahy said Australia already has some of the most expensive housing in the world - as other studies have reported - and such a policy would make the situation worse. 

"With the prevailing macro-economic conditions and surging demand for housing, using super for housing deposits would be disastrous and push prices even further out of reach of first-time buyers,” Mr Fahy said.

“Superannuation isn’t the reason young Australians can’t afford to buy a home of their own. A lack of supply, and the policy settings with respect to residential investment property has had a distortionary effect on demand.

"These are the real issues that must be tackled to generate improvements in housing affordability." 

The argument for using superannuation funds to buy a home has gathered momentum in recent months following the introduction of the COVID-19 early access to super scheme

 Liberal MP and Chair of the Economics Committee Tim Wilson is a fervent supporter of this movement, even starting his own website 'Home First, Super Second'.

“There is only one policy that stops young Australians using all of their savings to buy their first home, and it is prioritising super over home ownership,” Mr Wilson told The Saturday Paper.

First home buyer numbers are actually at their highest point since June 2009, accounting for 35.9% of all owner-occupied loan commitments. 

Yet affordability is worsening across the country: House prices increased at the highest rate in 17 years in February (up 2.1%), while even regional affordability is declining faster than capital cities

ASFA's review found enabling Australians to use super deposits would not help affordability at all, instead reporting: 

  • It would be inequitable and ineffective since it would most likely be used by higher income earners who can afford a home already, and
  • The increased purchasing power would be near fully capitalised into higher house prices, exacerbating the upswing of the current house price-credit cycle.

"Using superannuation for housing deposits is fundamentally inconsistent with the objective of superannuation to provide an adequate retirement income, Dr Fahy said.

"None of the comprehensive reviews of superannuation over the last decade have recommended it, while several have made recommendations to the contrary.

"Patient, long-term superannuation capital has the capacity to generate increases in housing supply and improve tenure and affordability in the rental market.”

Former Prime Minister Malcolm Turnbull is one high-profile person to reject the proposal of using super to buy houses. 

"I can only comment on what has been proposed by them, and I have great affection for them, but they are just wrong," Turnbull said. 

"It is honestly wrong. If you've got a fire you put water on it, not kerosine. The last thing the housing market needs is firing up stronger demand."

Incentives that boost demand for housing are seen by some experts as a key reason for booming house prices, such as cash grants for first home buyers and the recent HomeBuilder scheme

Instead, ASFA's review recommends supply-based policy changes to address affordability concerns, like: 

"There have been several academic reviews of the Australian housing market in recent years and all raise supply as a crucial contributor to lack of affordability," ASFA's report said. 

"It is also widely recognised that favourable taxation and transfer policy has a distortionary effect on the demand for residential housing."

Related: RBA watching housing market boom 'carefully', may intervene

What about using your super to pay down a mortgage? 

The Federal Government's Retirement Income Review released last year found there is a growing number of retirees still paying their mortgages in retirement, which other data has also shown in the past

One in 10 retired Australians are still paying a mortgage when they retire, and this is only expected to increase. 

The retirement income review found one of the biggest reasons for inequality in retirement is still paying a mortgage, or not owning a home at all. 

"If households are diverting their income to pay down large mortgage debts, they could struggle to build retirement savings outside the home. This could delay when some households retire," the review found. 

While there are many critics of using superannuation funds to buy a house, using said funds to pay off an existing mortgage ahead of retirement is generally seen as a more viable strategy for some. 

Australians over 65 can currently withdraw from their super under any circumstances, and over-60s can make lump sum withdrawals tax-free. 

Paying a chunk off a mortgage could have substantial benefits for retirees, as it would help alleviate the high household budget costs of monthly repayments. 

2324

Housing is consistently one of the highest weekly costs in retirement. Source: ASFA


Photo by Maricar Limjoco on Unsplash   

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Latest Articles

author-avatar
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

Collections:

Be Savings smart.
Subscribe for free money newsletters.

By subscribing you agree to the Savings Privacy Policy

Loading data please wait...

{{returnData.productName}}

Overview

Current Rate

{{returnData.currentRate | percentage:2}}

Comparison Rate*

{{returnData.comparisonRate | percentage:2}}

Rate Type

{{returnData.rateType}}

Advertised Rate

{{returnData.advertisedInterestRate}}

Comparison Rate*

{{returnData.comparisonRate}}

Monthly Repayment

{{returnData.monthlyRepayment}}

Interest Type

{{returnData.interestType}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Bonus Interest Rate

{{returnData.bonusInterestRate | percentage:2}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Introductory Rate

{{returnData.introductoryRate | percentage:2}}

Introductory Term

{{returnData.introductoryTerm}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Term

{{returnData.term}}

Advertised Interest Rate

{{returnData.advertisedInterestRate | percentage:2}}

Interest Frequency

{{returnData.interestFrequency}}


Fees and Features

Ongoing Annualised Fee

{{returnData.annualFee}}

Upfront Fee

{{returnData.upfrontFee}}

Offset Account

Redraw

Principal & Interest

Interest Only

N/A{{returnData.interestOnly}}

Max loan to value ratio (LVR)

{{returnData.maxLVR | percentage:0}}

Lump sum repayments

N/A

Additional repayments

Maximum Loan Term

{{returnData.maximumLoanTerm}}

Upfront Fee

${{returnData.upfrontFee}}

Ongoing Monthly Fee

{{returnData.ongoingFees}}

Early Repayment Fee Applies

N/A

Vehicle Types

{{returnData.vehicleType}}

Maximum Vehicle Age

{{returnData.maximumVehicleAge}}

Pre Approval Available

N/A

Online Application

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Minimum Deposit

{{returnData.minDeposit | currency : '$' : 0}}

Upfront Fees

{{returnData.upfrontFee | currency : '$' : 0}}

Annual Fees

{{returnData.annualFee | currency : '$' : 0}}

Notice Period to Withdraw

{{returnData.noticePeriodToWithdraw}}

Online Application

N/A

Automatic Rollover

N/A

Maturity Alert

N/A