On Sunday, the Prime Minister announced that aspiring first-time home buyers will be able to access and use up to 40% of their retirement pension to purchase property if the Liberal Party wins the next federal election.
Naturally, the announcement raises a handful of red flags. For starters, data shows that most Australians are already well below their super sales, and in particular, women have significantly less than men. There is also the very real concern that simply adding more money and more buyers to an already record market will only drive prices higher.
But the announcement also offers hope to many Australians desperate to get on the property ladder increasingly out of reach. As someone who recently used some 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 (about $70,000 a year each), but they’re nowhere near enough to save the kind of deposit required to buy an entry-level property without outside help. Unfortunately, the many half-baked suggestions thrown around by countless well-meaning but delusional baby boomers (living with relatives to save rent, being loaned out or receiving a deposit from mom and dad’s bank, winning the lottery) n were not 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 started doing the math and I quickly realized that this unique opportunity could really make a difference.
The first thing we did was discuss our idea with financial experts. My spouse sought advice from an advisor and a family member who works in the financial industry. I saw a financial planner who specializes in advising women on how to ensure they are not left behind financially (and who offered me free initial consultations!) and spoke with a relative who has a lot more financial knowledge than I do.
We’ve also spent hours reading about it and reading 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-time home buyer in Australia is between 31 and 33 years old. At this age, a person’s superannuation balance should be between $61,000 and $76,000, but for most Australians this is far from the case.
According to the Association of Superannuation Funds of Australia (ASFA), the average balance for men in the 31-33 age bracket is $51,175. For women, it’s even less at just $42,240.
As many pundits have pointed out since the Liberal Party’s announcement, withdrawing almost half of the funds from an already depleted account is deeply dangerous.
When we purchased our property, I was 31 and my pension balance was close to $100,000. Indeed, when I was 18 and working an entry-level office job during my gap year, I had the dumb luck of attending a lunchtime seminar on personal finance, where a series of graphs showed the benefits of small voluntary contributions over time. Without thinking too much about it, I started contributing an extra $10 a week and continued this habit for the next few years. The advice did pay off, and because of that, I’m one of the only people I know whose super balance is where it should be for my age.
This surplus, combined with advice from the financial planner, made me feel safe to withdraw $20,000 from my super to use for a deposit.
For my companion, it was a little different. Having been self-employed for years, his super was below what it should have been for his age, 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
Due to our age and when buying in 2020, we took a lot of precautions. At the time, it was still unclear whether the housing market would crash, whether people would lose their jobs, whether we were going to start families in the next few years, and the assumption that interest rates would rise ( they are now ready to) – all factors that played a major role in deciding how much we could safely spend.
Experts like Barefoot Investor say your mortgage or rent should not exceed 30% of your take home pay. This amount was what we were already paying in rent, so we used that as a basic guide and then factored in the additional factors.
After calculating the numbers, we decided on a maximum amount of $750,000.
Look for hidden costs (and hidden benefits)
There are a lot of hidden costs when buying your first home, and it’s important to take them into account before making any calculations. For us, this included Lender’s Mortgage Insurance (LMI) due to our less than 20% deposit, as well as the annual rates and corporate fees that come with buying an apartment. Freestanding properties also come with fees, and most states and territories have special offers for first-time home buyers, such as reduced or no stamp duty.
Beware of big offers
Once we had done our homework, accessed our super, and set our security amount, we went to the banks. The first major bank we met offered us a pre-approval amount of $1.1 million, or about 50% of our salaries. The offer was seriously tempting and we both dreamed of the infinitely nicer property we could buy for that amount. But remembering our risk factors and sticking firmly to what we knew was safe, we declined the offer and opted for another bank whose lending practices more aligned with our values.
The end game
It has now been 18 months since we bought our apartment and we each pay $20 more per week than we pay in rent. My partner is also making some great extra contributions to get his balance back to where it needs to be for his age, but that 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 these are all prime issues to have and it’s amazing to pay something that will one day truly be ours.
But it’s also deeply unfair and a bit embarrassing. The system that got us into the market is horribly flawed and puts people at serious risk of not being able to retire safely.
For so long, millennials have been told that the problem is our inability to save a down payment, when in reality the problems are runaway house prices, stagnant wage growth, the impending rise in interest rates and a persistent denial of reality by politicians. who could implement policies to solve the problem.
If the Liberals’ ploy to get into super comes to fruition, think long and hard before you jump in. Do your research, seek advice from financial experts, and stand firm on what you can afford.
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