In the lead up to Australia’s federal election, Prime Minister Scott Morrison has proposed a new scheme that lets first home buyers use up to $50,000 of their superannuation to buy a home. However, the plan may not benefit the people it was designed for...
Australia’s Prime Minister, Scott Morrison (ScoMo) has unveiled a controversial new initiative to help Aussies buy a house. ScoMo told Aussie voters that they should have the right to use their super funds to buy their first homes, making the policy the main attraction of his election campaign.
ScoMo’s First Home Buyers grant policy will let first home buyers use their superannuation to access up to 40% (or a maximum of $50,000) for a deposit on their first home if the Liberal Party wins the upcoming election.
“It’s your home and it’s your super!” ScoMo declared at the Liberal Party campaign launch in Brisbane.
While ScoMo might think that letting people dig into their super to buy a home is the right way to keep the economy going (and maybe win an election), most financial experts aren’t exactly thrilled about the idea — for a couple of reasons.
DMARGE spoke with Catherine Mapusua, Head of Lending at Australian digital loan provider, WLTH to get her thoughts on what ScoMo’s policy means for Aussies.
Mapusua said that the new policy, despite being called a “First Home Buyers” grant, won’t do very much to help young Australians buy a house. In fact, it will mostly benefit older people who have a substantial amount of superannuation.
“I personally believe it helps those who already have a more secure financial future to the detriment of those who need it more — It mostly benefits the older generations who have a substantial amount in their superannuation and have not yet bought their first home”
According to the Association of Superannuation Funds of Australia (ASFA) — the authority on all on all things super — the average superannuation balance of a 30-year old Aussie sits at roughly the $20,000 mark, which won’t move the meter much on a 5% deposit in Sydney where the median house price sits at $1.6 million…
“As property prices further increase with the new demand, it makes it more difficult for young Australians who don’t have a large superannuation to get into the market,” added Mapusua.
The policy also betrays the entire point of superannuation, especially for younger people, which is to guarantee the long-term growth of funds for a comfortable retirement. By encouraging younger people to access their superannuation early to buy a house in what is being called a “totally overheated” property market — ScoMo is potentially robbing young Aussies of the power of compound interest.
The earlier and the more consistent that young people are with making healthy contributions to a good super fund, the greater the amount of money that they will have saved for retirement. If you’re thinking about updating your superannuation — you can read DMARGE’s review of the best Australian superfunds here.
While the grant has been widely criticized for its lack of efficiency concerning younger Australians, Mapusua said that one major upside was that the scheme may work to alleviate interest-rate related stress.
“As interest rates are expected to increase in the near future, the need for a large deposit is emphasized further to avoid mortgage stress from overwhelming loan repayments.”
At the end of the day, ScoMo’s housing promise seems to be a poorly planned attempt to win over some last minute votes by being more vocal about “housing affordability” in the days before the upcoming election.