The election’s getting close, and between now and polling day we’ll be bombarded with an avalanche of sensational headlines, all designed to sway us one way or the other. They might grab attention, but scratch the surface and they often fall apart.
Take a recent example: ‘True cost of super raids for deposits.’ The headline screams crisis. The claim? That letting first homebuyers access their super could cost taxpayers more than $1.4 billion a year by 2050 in extra age pension costs.
It sounds dramatic, but dig deeper.
The figure came from the Parliamentary Budget Office – theoretically independent – but hinges on a hypothetical 40-year-old pulling out $50,000 next year, then retiring at 67 with no attempt to rebuild their balance. That’s a shaky foundation. It gives no credit for the upside of getting into a home sooner or the wealth that can come from owning property earlier. And there’s no mention of the downsizer contribution – $300,000 into super after age 55 – which could more than make up the difference.
Labor MP and Chair of the Parliamentary Standing Committee on Economics, Daniel Mulino, weighed in, warning that ‘Peter Dutton’s reckless plan to raid super will push house prices up.’ But it’s not a raid – it’s a proposal to let first homebuyers use part of their super for a deposit, on the condition it’s repaid with earnings.
Yes, it may push house prices up – but so does every other scheme to help buyers: stamp duty concessions, Labor’s shared ownership proposal, even interest rate cuts.
So what is the Coalition actually proposing under their Super Home Buyer Scheme?
First homebuyers could access up to $50,000 or 40% of their super – whichever is less – to help purchase a home. But here’s the key point: it must be repaid when the property is sold, along with a share of any capital gain. In effect, it’s returned to super, as if it had grown in the fund.
For example, if someone withdrew $40,000 and sold the home seven years later with a 10% increase in value, they’d repay $44,000 – the original amount plus $4,000 representing their share of the gain.
It’s not a raid: it’s an investment, with a mechanism to protect long-term super savings.
Take a couple, both aged 35, with $84,000 each in super and $85,000 saved. Without the scheme, they’d face $21,000 in mortgage insurance. But by withdrawing $36,000 each from super, that cost drops to $6,700 – saving over $14,000. It helps them reach a better loan-to-valuation ratio sooner, enabling refinancing at more competitive rates. The scheme gives them a leg up today, without sacrificing their retirement future.
Instead of trading scary numbers, all parties would do better to focus on an issue hurting first-home buyers right now: mortgage insurance.
It’s compulsory if your deposit is under 20% – fair enough. But the sting? It’s non-transferable. If you’ve paid it once and want to refinance – even with the same property and loan amount – you have to pay it again. That second hit could top $20,000.
We’re told to shop around for better rates, but for buyers with smaller deposits, switching lenders becomes a financial dead end.
There’s a simple fix that wouldn’t cost the budget a cent: make mortgage insurance portable. It would make first-home ownership more affordable, flexible, and competitive – without touching super or the pension system.
Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.
Withdrawing from super and repaying that amount plus any gain would more than likely mean that the homeowner would then still not have enough money to buy a new property.