The pros and cons of first home buyers using super now

Buying your first property today in a property market where prices are soaring, especially in Sydney is becoming increasingly difficult and frustrating for Australia’s first home buyers who also have to compete with property investors.

So what can first home buyers do to get on the property ladder faster if their savings aren’t enough?

The Treasurer, Joe Hockey has recently suggested in order to help first home buyers purchase their first home they could use their superannuation savings as part of their house deposit and the Prime Minister Tony Abbott believes this is a “perfectly good and reasonable idea”.

With housing prices going through the roof with Sydney taking the lead with a 14.1 per cent growth rate last year, followed by Brisbane (6.1 per cent growth), it is easy to understand how first home buyers are struggling to save a deposit. The median house price in Sydney today is now crazily expensive at $895,000 which for many is impossible to achieve a deposit as every year house prices are constantly increasing and not relenting.

Savers are struggling to keep up, especially when interest rates are at one of their lowest at 2.25 per cent which is not doing any favours for those trying to save a deposit. With most properties requiring a 10% deposit, that is at least $80,000 - $90,000 deposit required for some Sydney properties that are close to the CBD.

Superannuation has been in place to save for retirement and all employees of working age must contribute to super, or their employers contribute this for them. By opening superannuation savings up to use to purchase housing, young people could actually see their savings wiped out if they are not careful.

So what are the pros and cons of young people being able to access their super early in order to purchase their first home?

Pros of accessing super early to purchase a home

  • Young people will have access to extra savings which they can use towards a deposit to buy their first home.
  • A house is a solid investment and over the long term it should increase in value, just like your superannuation savings would if left untouched.

Cons of accessing super early to purchase a home

  • With more people having access to superannuation savings, this will increase demand even though supply is low thereby pushing up housing prices even more.
  • Could damage and add pressure to retirement savings, as superannuation is there to encourage Australians to save for their retirement.
  • If used to buy a house in the wrong location, first home buyers could see their superannuation savings depleted and completely lost.
It is important to remember that you can buy property within a SMSF (Self Managed Super Fund), but there are many things to consider such as having a certain amount saved up already, and requiring a 30% deposit. People tend to buy within their SMSF once they have already purchased one or two properties, so this route does not suit FHBs.

In order for first home buyers to have a better chance of getting on the property ladder, the first thing that needs to happen is for the government to increase supply and make more housing available outside of the central urban areas to meet demand more effectively as currently new developments are not happening fast enough to meet the current demand.

So although opening up superannuation savings would provide first home buyers with the extra money required to produce a deposit, the government must first address the supply and demand issue that is just one of the many reasons stopping first home buyers being able to buy their first home.

Until then, first home buyers in Sydney will have to keep on saving and make sacrifices as well as looking at more affordable regions further out west and down south if they want to buy a home.
Published on 2nd of July 2015 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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