Allowing first home buyers to access their super to buy a house

The prospect of allowing young people access to their superannuation for a home deposit has been previously dismissed by Malcolm Turnbull as a “thoroughly bad idea”.

But I don't think it ought be ruled out. 

It needs consideration as proposals to alter negative gearing and capital gains tax arrangements do nothing to help first-home buyers obtain their deposit.

There are some wise MPs pushing Treasurer Scott Morrison to allow indirect access to assist buyers onto the property ladder.

There are those against the plan, warning it would drive up housing prices and that allowing first-home buyers early access to super will set back a retirement income system that is still struggling to fully ­deliver. 

Ofcourse currently a household in difficulty with their mortgage has the chance to access superannuation to clear arrears sometimes, whereas a first home buyer in an otherwise good financial condition cannot temporarily access their super for a deposit.

The ­proposal was dismissed by Turnbull when floated by ­former treasurer Joe Hockey in 2015.

Financial advisor Daryl Dixon recently said the Australian government should look at the New Zealand access via KiwiSaver super accounts.

Dixon noted for many Australians without access to parental help, being granted partial or full access to their compulsory super accounts provided their best chance to obtain a deposit to gain entry to the housing market.

The New Zealand scheme sets limits on the value of the house and income of the purchasers.

Australian super funds may object to losing funds under management, but the suggestion is the use of mortgage offset account facilities provides an effective means to ensure that the money used as a house deposit is not lost to the super system.

The money invested in the offset account would remain the property of the super fund with the income from the offset account reducing the cost of servicing the mortgage.

For the government the annual cost would be limited to the loss of the 15 percent income tax that would otherwise be collected on super fund earnings.

Dixon suggested safeguards could limit use of the super fund mortgage offset account to 10 years by when inflation and mortgage repayments have built up the house owners’ equity. 

The Australian government could also look at Canada’s Home Buyer’s Plan where Canandian first home buyers can withdraw up to $25,000 from their super with funds repaid within 15 years.

Yes redirecting members super balances early in their contribution cycle will hurt the compounding effect of returns and lead to lower retirement balances. 

But Generation Y have been accruing more debt at an earlier age than any of their predecessors. With 40 percent of 18- to 35-year-olds with a study-related HECS debt, this generation are already on the back foot before they have even begun their careers.

This article first appeared in the Saturday Daily Telegraph.