Superannuation
SMSF Mate
Updated Feb 1, 2022
If you are thinking about getting into the housing market but struggling to find savings for a deposit, you might be able to tap into your super fund. You, unfortunately, can’t use all the money in your super fund; the First Home Super Saver Scheme will allow you to use an approved amount of your super fund to get you over the line with your first home purchase.
If you are a first home buyer, you can now use an eligible amount of your super savings for a house deposit. First introduced in 2017, the First Home Super Saver Scheme (FHSSS) was introduced to help Australians get into the housing market. The scheme allows you to withdraw an amount of the voluntary super contributions you have made from the 1st of July 2017 onwards.
You must be a first home buyer to be eligible, and if so, you can access up to $15,000 in super per year plus earnings, up to a maximum of $30,000 per person. Couples have up to a maximum of $60,000 voluntary contributions to use since 2017.
The FHSSS provides first home buyers with the opportunity to get into the housing market when, otherwise, they might have found it challenging. Some may argue that the housing market has provided better returns than other investments historically, with higher gearing or leverage due to the borrowed amount.
If you are a first home buyer, you can now use an eligible amount of your super savings for a house deposit. First introduced in 2017, the First Home Super Saver Scheme (FHSSS) was introduced to help Australians get into the housing market. The scheme allows you to withdraw an amount of the voluntary super contributions you have made from the 1st of July 2017 onwards.
The FHSSS provides first home buyers with the opportunity to get into the housing market when, otherwise, they might have found it challenging. Some may argue that the housing market has provided better returns than other investments historically, with higher gearing or leverage due to the borrowed amount.
While there are many benefits, it’s important to remember that the scheme is not for everyone and you have to tick a few boxes before you’re allowed to participate, which include the following:
The financial effects of COVID-19 have so far been significant and to combat these issues the federal government have announced a scheme which allows eligible Australians to access up to $20,000 from their super fund to help get them through the crisis.
The ATO has specified that you can get up to $10,000 from your super fund before the 1st of July 2020, and a further $10,000 between the 1st of July and 24th of September 2020 if you meet the following criteria:
In most ordinary circumstances, you will need around a 20% deposit to get a mortgage on a property, and this means there is usually no requirement for lenders mortgage insurance. Some mortgage lenders will offer to work with you with a lower deposit amount; however, this comes at the cost of typically higher interest rates and lenders mortgage insurance. Given the nature of house prices in Australia, a 20% deposit might seem out of reach for most ordinary Australians, especially when that equates to around a $120,000 deposit using the current median house prices of all capital cities in Australia.
The early release scheme could present an opportunity to enter the property market sooner and build capital growth with money you otherwise wouldn’t have access to till retirement. Looking at it simply, $20,000 (potentially up to $40,000 for a couple) could go a long way towards a home deposit. If you’re a couple, $40,000 is almost a third of what you’d need for a 20% deposit on the median capital city property at the moment.
When you think about it, a couple could potentially withdraw up to $40,000 (if you are both eligible), which is a significant amount of money for your first home deposit. Historically speaking, investing in Australian property has been an excellent investment over the last 20 or so years. It has provided homeowners with remarkable capital growth and rental yields in most cases. However, it would be considered a very concentrated investment relative to the size of your super fund, which means all your eggs are essentially in one basket and very much tied to house price growth. If you are looking for a more diversified approach, then a balanced portfolio of shares, income securities and property could be a better approach.
There are several factors to consider before you decide if accessing your super early to invest in the property market is right for you. Below we take a look at the key considerations so you can make an informed decision.
It’s commonly said that for most people, buying a property is the single most significant investment you will make and it’s considered a great way to save for your retirement. Given the nature of investing in your primary residence, you are forced to contribute a large portion of your income to paying off the property, when you might not have the same discipline to invest in shares the same way. Property is also a geared investment meaning your returns are leveraged to the amount you are allowed to borrow, which significantly enhances any capital gains or losses when investing in property.
While the logistics of buying a home can be complicated, like stamp duty, land tax and real estate agents fees, once you own the property, it is very easy for most people to understand. Buy the property, maintain the property and attempt to sell it for a higher value than what you paid for it at a later date. The tangible nature of property also has big appeal when compared to investing in shares or other paper investments.
One very attractive point about the scheme is that if you are eligible to withdraw your super to purchase a property, you will not need to pay tax on the amounts withdrawn which means a couple could withdraw up to $40,000 tax-free. It should be said that you have already paid the concessional tax rate of 15% on those super contributions, you are still going to be ahead when compared to your marginal tax rate when using post-tax dollars for a deposit.
Having a hedge against inflation means you are invested in an asset which is expected to either maintain or increase its value over time as the economy expands. Inflation refers to the cost of goods and services increasing over time due to supply and demand factors. Property investments are generally considered a hedge against inflation because rents and home values typically rise when the economy is expanding, and demand is increasing. Bonds or fixed-income investments would be the opposite of this theory as they usually suffer during times of inflation.
To be eligible to access the scheme, you must qualify due to financial hardship; meaning you are either unemployed or had a >20% reduction in your working hours since the start of the year. If you fit these categories, property investment might not be front of mind for obvious reasons. All applications for the scheme are assessed, and if you don’t meet the criteria, then you are likely to be rejected. If your claim is approved and you do not technically meet the criteria, then the ATO has indicated they will be coming to get you. Penalties for this offence range from having to pay the tax outstanding on the amount withdrawn to having to pay fines and penalties.
If you are experiencing financial difficulty, then getting approved for a mortgage is going to be a challenging process. Generally speaking, a mortgage lender will need to see evidence of a stable job and a decent income to service the debt. If your working hours have been reduced due to COVID-19, then your mortgage application is likely to be rejected. Accessing your super for a mortgage deposit is also expected to be frowned upon by the mortgage lender. This would indicate a lack of cash flow stability and general financial hardship which is the opposite of what they want to see.
Research shows that for an individual to retire comfortably, a single person will need around $550,000 in total superannuation savings, and a couple will need around $650,000, which is a significant amount of money. By withdrawing $20,000 now, it could be the difference of up to $100,000 at retirement, depending on your current age. Investors need to consider that your super investments may grow at a higher rate when compared to a property investment over the long term.
Below is some scenario modelling completed by Industry Super which shows the difference that $20,000 can make to your retirement savings over time. As you can see, it can really add up and should be an important consideration when you are thinking about accessing your super early.
| Current Age | Super balance | Super withdrawn | Difference in retirement |
| 25 | $20,000 | $20,000 | $95,696 |
| 30 | $40,000 | $20,000 | $79,393 |
| 35 | $60,000 | $20,000 | $65,868 |
| 40 | $79,000 | $20,000 | $54,647 |
| 45 | $95,000 | $20,000 | $45,338 |
| 50 | $109,000 | $20,000 | $37,614 |
While withdrawing money from your super to use as a deposit for your first home might sound like a quick and easy way to raise funds, there are a number of factors which will likely work against you in your quest for homeownership. It’s important to consider all the points raised above and to seek professional financial advice before making such a serious decision. A financial professional will be able to establish if you are eligible to access your super early and highlight any other considerations which may impact your decision, and also ensure you do not incur any penalties for wrongdoing.
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