Using your superannuation as a house deposit

Saving for a house is a rite of passage for most young Australian’s.

My parents bought their house for just over $60,000 and paid it off in 4 years! That was over 35 years ago, flash forward to now and most young Australians struggle to raise a deposit in 4 years let alone pay off a mortgage.

Times were different in the 1980’s:

  • interest rates were higher (averaging between 12%-16% compared to now 4-6%)
  • wages were lower (average $18,314 annual compared to $48,620 annual)
  • property prices lower (average Brisbane $35,475, Sydney $68,850 to Brisbane $486,000 and Sydney $852,000)

It’s no surprise that the number of people renting compared to owing their own home has dropped, a fact confirmed in the 2016 census:

So, the question the Australian Government has to ask itself is, how can we help the younger generation achieve the Aussie dream of owning their own home? There are many great concessions for us first home buyers in Qld including no stamp duty and money paid towards new house and land packages, but this assumes you have some form of deposit already up your sleeve.

The 2017 federal budget saw the government introduce legislation called ‘First Home Super Saver Scheme’ to allow first home buyers to withdraw eligible superannuation savings to count towards a home deposit.

How does it work?

From 1 July 2017 first home buyers can make either voluntary concessional contributions (before tax) and non-concessional contributions into their superannuation fund to help save for a house deposit.

When you put money into your industry superannuation fund, they fund uses this money to invest for you so that when you retire you have more money than what you originally contributed due to the additional earnings received throughout your life based on your investments.

The amount you can withdraw the house deposit works the same way, any additional earning on the contributions you make will be able to add to this ‘house deposit’. However, the catch is as an individual you can only contribute $30,000 over two years (as you are capped at $15,000 per year) so a couple could only contribute $60,000.

An average $500,000 house at 20% deposit would mean savings of $100,000. This means the first home super saver scheme will only get you 60% of the way at best.

There is an argument that putting $30,000 - $60,000 in a high interest saving accounts may see you earn more than by using this scheme, when you consider superannuation account keeping and withdrawal fees.

According to many tax and financial experts, the average income earner is expected to only be $2,500 better off than if they were to simply continue saving into a normal bank savings account.

So, although tempting to blow your retirement savings between 25-35, just remember you will have to work like a trojan for the next 30 years to not only pay back your mortgage but catch up those lost superannuation saving years.

If you’re thinking of buying the next 1-3 years this maybe the way to go, but if you’re 5-10 years away its probably not going to be worth it.

As always, if you are thinking of salary sacrificing, crunch your numbers first and always speak with your financial advisor before making big financial decisions.