Using Super to buy houses

[Lach72]

http://www.news.com.au/finance/supe...t-of-struggle-st/story-e6frfmdi-1227093458723

Interesting idea from Xenophon.
Lot of thought that it will just drive up house prices.

My thoughts are why restrict it to first home buyers and why restrict the amount?

If I could take our lump sum and drop it on to the mortgage I'd have the ability to pay the loan off in 5-7 years instead of 30, and save 500k in interest. My super is not going to generate that money in that time...Could then use the money saved to pay back the super...

 

[Scotland]

Interesting concept.

As a youngling with comparatively naff all super getting into the housing market I would much rather have an extra $100k or so in equity than a super fund sitting their untouchable for 30 years.

If you have $200k super and throw it into your home loan you're saving between $10-15k per year in interest. That interest would otherwise go to the bank, who distributes profits to shareholders - such as super funds.

I can't see it being considered on this basis. Too many boomer votes to be lost.

 

[Lach72]

Yeah it's interesting.

I would even go further and allow the employer contributions to go on there as well.
I reckon if this were enabled, I could reduce my current mortgage costs (interest) to 120 per week.With employer contributions, I could actually be debt free in 5 years...

 

[sabre_ac]

It exists in Canada (recently ranked the most over priced property market in the world) and includes penalties if you don't return the funds within a specified time period. I don't think its a good program, in Canada their mandatory "super" is allot lower than Australia, resulting in many people simply not saving enough for retirement before they withdraw for a home. Furthermore the "Canadian Super" goes in tax free and taxed on withdrawal, which makes it not a good idea for people just starting their career as their current income will be lower than when they withdraw it.

For Australia I'm struggling to see how it won't further artificially inflate house prices and create a whole generation completely reliant on one asset for a comfortable retirement, when it comes to financial health isn't diversification the name of the game?

If you have an active interest in your long term financial health and some education (The combination of which most people don't have), it is potentially a tool that can be used positively. The concern is that this option will put allot of already high risk people at even more risk, for this reason I am against the idea.

If Australia is going to look to Canada for ideas, what about their TFSA? It is savings or investment accounts that your put money into from your after tax income and all income and capital gains earned in those accounts are tax free. The amount your allowed to invest in these accounts is based on how many years you have been in Canada at roughly 5k per year, the added kicker is whatever you withdraw from these accounts over the years is added back to your available contribution room.

So a far better scenario is saving for a house in this account and then transferring it into your home (another tax free investment). You contribution room then includes all gains on the initial savings plus what the government allocates each year, over the average life of an individual the contribution room can turn into quite the nice little tax haven.

http://en.wikipedia.org/wiki/Tax-Free_Savings_Account

 

[Jimmy_the_Gent]

http://m.canberratimes.com.au/busin...ring-should-be-abolished-20141021-119a4r.html

This journalist has an opinion on the issue. I thought I'd post to add to the discussion.

 

[Lach72]

I'm arguing why restrict it to first home buyers.

Why can't I use MY money to get ME out of debt and prevent me paying 500k in interest on my house over the term of the loan?

I will not make 500k in interest on my super in that time, in fact if i can reduce my housing cost to zero in 7 years instead of 30 i have a greater capacity to save for my retirement and create wealth.

 

[Scotland]

I think the counter-argument to your position Lach72 is the inflationary effect it will have. That and anything which may decrease existing super fund values is politically unpalatable to anyone over 50.

Today you may have a $400k loan and $100k in super. Your loan becomes $300k and your income goes up 10%. Each person in your position may have previously been able to afford $400k, but can now effectively afford $500k (ignoring the 10% increase in income), so the houses which were $400k become $500k and people still end up paying back $400k then end up with no super...

 

[Lach72]

Perhaps. It's a frustration though Scotland .
Telling people they should effectively be saddled with debt when their own money is sitting there waiting to be used.

And in my current position I care bugger all for upgrading and more about getting out from under

 

[Scotland]

I share your frustration, Lachie. And that your 'current position' pretty much gets a big bag of DILLIGAF from TPTB.

I'd probably favour a system where PPOR repayments are pre-tax ahead of dipping into ones super, but even that would be inflationary. Just * negative gearing off, appropriately tax people who own multiple residential properties and lower tax rates to encourage investment into productive industries. Pipe dream stuff in Oz, unfortunately.

 

[Lach72]

I share your frustration, Lachie. And that your 'current position' pretty much gets a big bag of DILLIGAF from TPTB.

I'd probably favour a system where PPOR repayments are pre-tax ahead of dipping into ones super, but even that would be inflationary. Just **** negative gearing off, appropriately tax people who own multiple residential properties and lower tax rates to encourage investment into productive industries. Pipe dream stuff in Oz, unfortunately.

Yeah.
Frustratingly, I could also generate my own wealth and provide better for my own retirement and current financial status by reducing debt...using my money.
The government would rather give first home owners grants and negative gearing, that actually cost them money than do it this way.

 

[Ripper]

In reality it is the banks that set the house prices. If they did not lend as much money or had higher LVR ratios then housing would be cheaper.

 

[Lach72]

In reality it is the banks that set the house prices. If they did not lend as much money or had higher LVR ratios then housing would be cheaper.

There is that.
Free flowing credit is what the economy is based on now, so I'll just stay saddled...

 

[Lach72]

I'm wondering also how many people will still be carrying significant housing debt at retirement...and will they have anything to pass on as past generations have...

 

[Jimmy_the_Gent]

I'm wondering also how many people will still be carrying significant housing debt at retirement...and will they have anything to pass on as past generations have...

Technically people shouldn't be given loans if they're unable to pay them back during their working lives, so in theory - zero.

Having said that, I don't really know how bad lending standards are but I wouldn't think we're giving 500k loans to 58 year olds at 90% LVR, so there shouldn't be drastic problems for people.

Anyhow, if people find themselves with some housing debt at retirement, they have the options:

- Work longer
- Downgrade PPOR
- Use a chunk of your super to pay off your mortgage

 

[sabre_ac]

I'm arguing why restrict it to first home buyers.

Why can't I use MY money to get ME out of debt and prevent me paying 500k in interest on my house over the term of the loan?

I will not make 500k in interest on my super in that time, in fact if i can reduce my housing cost to zero in 7 years instead of 30 i have a greater capacity to save for my retirement and create wealth.

Definitely don't make it available to first home buyers, perhaps make it available to those who have built up some, even then I would be suggest it's not a good policy if its going towards your principal residence.

Do many people still believe their family home is their ticket to a comfortable retirement? I think you will find the answer is yes.

Laws are created to protect the majority and or most vulnerable, the fact is the majority of people require compulsory super contributions to fund their retirement.

Which means people like yourself who take an active interest in their financial security potentially have to suffer for the sake of the rest.

 

[theGav56]

I'm wondering also how many people will still be carrying significant housing debt at retirement...and will they have anything to pass on as past generations have...

The idea of passing something on is going to decline, mainly because people are living longer and being non-productive for longer. There are also fewer children willing/able to care for parents, who need to take care of themselves = spend the inheritance.

Our personal plan is to give our boys their "inheritance" while we are still alive and kicking, and spend the rest on staying alive. Any residual will go to the next generation.

 

[chugginon]

The idea of passing something on is going to decline, mainly because people are living longer and being non-productive for longer. There are also fewer children willing/able to care for parents, who need to take care of themselves = spend the inheritance.

Our personal plan is to give our boys their "inheritance" while we are still alive and kicking, and spend the rest on staying alive. Any residual will go to the next generation.

Seems a lot of people are doing just that. Giving something to their kids , now, and then knowing what is left is theirs to live on Think it is a good idea if it can be done . If there is not much left at the end, is less for the next generation to squabble over .

 

[Lach72]

http://www.theage.com.au/federal-po...to-enter-property-market-20150306-13xe3l.html

 

[Squizz]

Lach72 Surely the vast majority of first home buyers wouldn't have accumulated enough super to make it worthwhile (particularly with interest rates so low at the moment). Doesn't seem good policy at all, especially when people are already showing a lack of willingness to downsize on retirement (freeing funds from their home rather than getting the pension). I can't believe that someone living in a debt-free $2m house (or more) with $500k of cash in the bank can still get a pension.

Renting and then buying a house further out (than you'd like) is what people have to come to terms with - as I did. I've spoken to quite a few people who seem horrified at the prospect of moving to the 'burbs (from their inner-city rentals). It's a bloody annoying conversation when they've complained about their woes in not finding a house that's renovated by someone else and in a "nice" suburb.


Edit - a number of reader comments in this article provide some further reasoning on why it isn't good policy:
http://m.news.domain.com.au/domain/...-superannuation-now-20150310-1401vt.html#poll

 

[Aussie Assault]

Lach72 Surely the vast majority of first home buyers wouldn't have accumulated enough super to make it worthwhile (particularly with interest rates so low at the moment). Doesn't seem good policy at all, especially when people are already showing a lack of willingness to downsize on retirement (freeing funds from their home rather than getting the pension). I can't believe that someone living in a debt-free $2m house (or more) with $500k of cash in the bank can still get a pension.

Renting and then buying a house further out (than you'd like) is what people have to come to terms with - as I did. I've spoken to quite a few people who seem horrified at the prospect of moving to the 'burbs (from their inner-city rentals). It's a bloody annoying conversation when they've complained about their woes in not finding a house that's renovated by someone else and in a "nice" suburb.


Edit - a number of reader comments in this article provide some further reasoning on why it isn't good policy:
http://m.news.domain.com.au/domain/...-superannuation-now-20150310-1401vt.html#poll

This the the truth. The whingers think they they should easily be able to save a deposit for an inner city suburb in 12 months. When they can't, they cry foul. They've probably been overseas a number of times already, drive a car that is < 3 years old, eat out a few times a week & love their new iPhone. I'm not saying these things are bad, but don't try and argue that our parents had it easy when the Richmond 3 bedroom townhouse is so far out of your limits. Commit to your savings, work out a budget, and if home ownership is a goal, live within your means to achieve it.

I've heard stories off my parents of their siblings/friends living in caravans with 3 kids while they saved for a house deposit for 4 years. Their younger days they moved back into their parents houses which were so small that they had to live separately while they saved for a house - they were married at this stage.

 

[Jello_B]

Super is bs. It's my money I should be able to have at it. It's like a child's saving scheme assuming that people can't look after themselves.
I am now a SMSF investing in commercial property.
Hope one day a govt has the guts to give us our money back.

 

[Jordie_tackles]

Super is bs. It's my money I should be able to have at it. It's like a child's saving scheme assuming that people can't look after themselves.
I am now a SMSF investing in commercial property.
Hope one day a govt has the guts to give us our money back.

You won't be happy when taxes have to be increased because half the population waste the cash and need to be financially assisted

 

[Jello_B]

You won't be happy when taxes have to be increased because half the population waste the cash and need to be financially assisted

What you mean like it is now?

 

[Squizz]

Super is bs. It's my money I should be able to have at it. It's like a child's saving scheme assuming that people can't look after themselves.
I am now a SMSF investing in commercial property.
Hope one day a govt has the guts to give us our money back.

Superannuation is concessionally taxed to assist people save for their retirement. There's no point arguing about how astute you are with money - the issue is that the majority of people have not saved successfully to provide any sort of meaningful income in retirement - other than paying off their mortgage (countered by an unwillingness to downsize on retirement when they can just get the pension). Hence a drain on public finances that the country will struggle to afford in future.

If you dislike super so much, why have you put so much (such that you can be running a SMSF investing in commercial property) in there in the first place?

 

[Jello_B]

Superannuation is concessionally taxed to assist people save for their retirement. There's no point arguing about how astute you are with money - the issue is that the majority of people have not saved successfully to provide any sort of meaningful income in retirement - other than paying off their mortgage (countered by an unwillingness to downsize on retirement when they can just get the pension). Hence a drain on public finances that the country will struggle to afford in future.

If you dislike super so much, why have you put so much (such that you can be running a SMSF investing in commercial property) in there in the first place?

All of the money in my SMSF is forced money. No extra.
They should means test for super.