On Sunday, the Prime Minister announced aspiring first home buyers will be able to access and use up to 40% of their superannuation to purchase a property if the Liberal Party wins at the next federal election.
Understandably, the announcement raises a handful of red flags. For starters, data shows that most Australians are already falling well short on their super balances, and in particular, women have substantially less than men. There’s also the very real concern that simply adding more money and more buyers to an already recording-breaking market will only drive prices up more.
But the announcement also offers hope to many Aussies desperate to get their foot on the increasingly out-of-reach property ladder. As someone who recently used a portion of my super to buy my first home, here’s what I want you to know:
Assess Your Situation
My partner and I both make comfortable salaries (around $70,000 p/a each), but they are nowhere near enough to save the kind of deposit required to purchase an entry-level property without external help. Unfortunately, the many half-baked suggestions thrown out by countless well-meaning but delusional boomers (living with parents to save rent, being loaned or given a deposit from the bank of mum and dad, winning the lottery) weren’t available to us.
But in 2020, when the federal government announced it would allow Australians to access up to $10,000 of their superannuation per financial year at the height of the COVID-19 lockdowns, I began to do the math and quickly realised that this one-off opportunity could actually make a difference.
The first thing we did was speak to financial experts about our idea. My partner sought advice from an advisor and a family member who works in the finance sector. I saw a financial planner who specialises in advising women on how to ensure they are not financially left behind (and offered free initial consultations!) and spoke with a relative who is much more financially literate than me.
We also spent hours reading up on the matter, and binged financial podcasts like The Pineapple Project and She’s on the Money.
Look At Your Balance
According to the Australian Bureau of Statistics the average first home buyer in Australia is aged between 31 and 33. By this age, a person’s superannuation balance should be between $61,000 and $76,000, but for most Australians, it’s nowhere near that.
According to the Association of Superannuation Funds of Australia (ASFA) the average balance for men within the 31-33 age bracket is $51,175. For women, it’s even less at just $42,240.
As many experts have pointed out since the Liberal Party’s announcement, removing almost half of the funds from an already depleted accounts is profoundly dangerous.
At the time of buying our property, I was 31 and my superannuation balance was at almost $100,000. This was because when I was 18 and working an entry-level desk job during my gap year I had the sheer dumb luck of attending a lunchtime seminar on personal finance where a series of graphs laid out the benefit of small voluntary contributions over time. Without thinking about it much, I began contributing an extra $10 a week, and continued the habit for the next few years. The advice well and truly paid off, and because of it, I am one of the only people I know whose super balance is where it should be for my age.
This surplus, combined with the advice from the financial planner, made me feel safe to withdraw $20,000 from my super to use towards a deposit.
For my partner, it was a little different. Having been self-employed for years, his super was below where it should have been for his age, and so he used a mix of personal savings and super to match my amount, making a deposit of $40,000.
Look At What You Can Afford
Because of our age and when we were buying in 2020, we took a lot of precaution. At the time, it was still unclear if the housing market would crash, if people would lose their jobs, if we would start a family in the next few years, and the assumption that interest rates would rise (they are now set to) — all factors which played a major part in deciding what was a safe amount for us to spend.
Experts like the Barefoot Investor say your mortgage or rent should be no more than 30% of your take home pay. That amount lined up with what we were already paying in rent, so we used that as a base guide and then considered the additional factors.
After crunching the numbers we decided on a maximum amount of $750,000.
Research Hidden Costs (and Hidden Perks)
There are a lot of hidden costs when buying your first home, and it’s important to factor these in before you make any calculations. For us, this included Lender’s Mortgage Insurance (LMI) on account of our deposit being less than 20%, as well as annual rates and body corporate fees that come with buying an apartment. Standalone properties also come with fees and most states and territories have special offers for first home buyers like reduced or no stamp duty.
Be Wary of Grand Offers
Once we had done our homework, accessed our super and set our safe amount, we went to the banks. The first major bank we met with offered us a pre-approval amount of $1.1 million, which was around 50% of our salaries. The offer was seriously tempting and we both dreamed of the infinitely nicer property we could purchase for that amount. But remembering our risk factors and sticking firm to what we knew was safe, we declined the offer and went with a different bank whose lending practices aligned more with our values.
The End Game
It’s now been 18 months since we purchased our apartment and we each pay $20 a week more than we were paying in rent. My partner also makes additional super contributions to bring his balance back up to where it needs to be for his age, but this will take a few years.
Things aren’t perfect — our dishwasher has been broken for 12 months, the shower door is falling off and we live next to a building site — but they are all privileged problems to have and it does feel amazing to be paying off something that will one day be truly ours.
But it also feels deeply unfair and a bit embarrassing. The system that allowed us to enter the market is hideously flawed and puts people at serious risk of being unable to retire safely.
For so long, millennials have been told that the problem is our inability to save a deposit, when in actual fact the issues are runaway housing prices, stagnant wage growth, soon to be rising interest rates, and a sustained denial of reality from the politicians who could implement policies to fix the problem.
If the Liberal’s scheme to access super does come to pass, think long and hard before diving in. Do research, seek advice from financial experts, and stay firm on what you can afford.