Australian superannuation doesn’t have the best reputation when it comes to the property market and home loans. Long story short, when they introduced compulsory employer contributions in 1992, they decided to make super ‘untouchable’ until you turned 50. It was genuine savings. What was meant to be a retirement fund is now increasingly seen as something that prevents people from buying property. We’re seeing more people asking if they can withdraw their own money and pay the 10% penalty, or take out what’s known as an Unlisted Super Fund (USF) which isn’t subject to these rules.
The good news is that, yes home buyers, you can use your super to buy a house. The bad news is that there are a lot of hoops to jump through and may impose a financial hardship. You’ll need to find a relevant credit provider or lender who may do a self-employed housing loan (not easy) and then you’ll have to prove that you meet the lending criteria (which is also not easy). A home loan for self-employed people can be tricky, but it’s definitely not impossible. An investment property is easier to finance, but remember that an investment property is not your main residence. If you’re thinking about moving into your new house and leaving the investment property vacant, you’ll need to make sure the lender allows this.
With house prices in Australia at historic highs, you can’t help but wonder if it’s a good idea to use your super as a deposit, get a home loan, find the right credit provider. In the long run, you may be better off keeping your money in super and waiting until you’re 50 to access it.
Home super saver scheme
The good news is that there was recently an initiative known as the FHSSS which allowed up to $30,000 per year to be withdrawn after 1 July 2015 and before 1 July 2018. Like all things housing-related, the government did their best to complicate this and we won’t see another scheme like it until 2020 (unless the new government changes their mind).
Super guarantee contributions (the “deductible ones”) can also be withdrawn, but only after you turn 65. While this seems counterintuitive to buying a house, it does come in handy for people who are transitioning to retirement. One of the benefits of super is that you get tax free compounding on your investments and depending on how much you have in super, withdrawing some can help with affordability when retiring.
Transition to retirement pensions TTRs is an expensive way of getting money out of super because they come with large fees that cut into your savings rate even more than salary sacrificing does. If it’s available at all, TTRs may only be an option if you have enough money saved in super to make it worth your while.
What is superannuation?
Superannuation (or “super”) is a system of saving for retirement in Australia. It was introduced in 1992 and requires employers to contribute 3% of an employee’s wage into a super fund. Employees are also allowed to make voluntary contributions to their super fund. Superannuation is managed by trustees who invest the money in a variety of assets, including shares, property and cash.
If you are in the fortunate position of making compulsory contributions to your employer’s super fund, then you can do what’s known as a ‘salary sacrifice’ or voluntary contributions. This allows you to reduce your normal income and instead put it towards buying a house. The downside is that you get taxed at 30% instead of 0%. This means for every $100 saved, only $70 goes into the deposit pot.
When can I access my super for an investment property?
Most people can’t access their super until they turn 50 or meet certain conditions, such as being unable to work due to illness or injury. There are some exceptions, such as if you want to use your super to buy a house. You can also access your super if you retire or reach age 65. Some people also access their super through a transition-to-retirement pension.
What types of things can I do with my super?
You can use your super to:
- Buy a home or unit
- Buy a holiday or second property
- Start a business
- pay for education expenses
- make personal contributions
- withdraw from the fund to help pay for medical expenses travel and retire.
Can you take your super out to buy a house?
Yes, you can take some of your super out to help pay for a deposit on a home. There are certain rules that apply to withdrawing money from your super, such as, if you’re under 55 when you make the withdrawal, they may withhold tax if you’ve made salary sacrificed contributions in the last two financial years and haven’t retired you may have been working for at least 10 years in Australia the withdrawal can’t be more than $30,000 per year.
So, if you’re under 55 and have been making salary sacrificed contributions for the last two financial years, you could withdraw up to $60,000 from your super to help buy a home.
If you’re thinking of buying a property, it’s important to start saving for a deposit as soon as possible. While it’s not easy to save for a house when you’re self-employed, there are a few ways to make it happen. One option is to use your superannuation fund to help with the deposit. The good news is that there are now schemes in place that allow you to do this without breaking the bank.
What is a scheme?
A scheme is a plan to achieve something, such as buying property. Schemes can also help people in other areas of their life. There are schemes for retirees and younger workers who want to save for retirement and there are even schemes for unemployed young people in South Australia (the Youth Opportunities Pilot Scheme).
Super and housing deposits The Australian government has established two superannuation savings schemes that allow you to access your super for a home deposit, the First Home Super Saver Scheme (FHSSS) and the Second Home Deposit Scheme (SHDS). Both of these were announced by then Treasurer Joe Hockey in his 2014-15 budget speech. The good news is that both of these schemes are open to anyone on the property market, not just first-home buyers.
How do I access my super for a house deposit?
The FHSSS and SHDS house deposit schemes work in the same way but there are some differences when it comes to eligibility and when you can withdraw money from your super.
If you take a lump-sum withdrawal from the MySuper account, that money may be taxed. If you withdraw funds before age 60 and have made salary sacrificed contributions in the last two financial years you may also have the tax withheld.
For the FHSSS withdrawals, can’t be more than $15,000 per year (or $30,000 over five years). For SHDS withdrawals can’t be more than $30,000 per year (or $60,000 over five years). You can either complete a direct payment form or apply for release authority for a home deposit.
What are the rules for withdrawing money from my super to buy a house?
There are some rules you may follow if you plan to withdraw your superannuation benefits to help pay for buying a home. Here are the conditions that apply.
You’re at least 18 years old you’ve received an Australian Taxation Office notice advising that your SMSF has been wound up because you have met the ‘condition of release’ for retirement purposes there is no legally binding contract between you and another party to purchase the residential property if your fund was set up before 9 May 2006 you’ve been a member of the fund for 10 years or more.
If you open an SMSF to complying with the conditions of release, your super fund may be closed within six months once you are at least 55 years old, please contact a professional before making any withdrawals from your super account. They may withdraw all or part of your concessional contributions cap in order to make sure you don’t pay too much tax on these contributions.
What is salary sacrificed contributions?
Salary sacrificed contributions are when you voluntarily give up part of your income in return for access to certain benefits that may save you money in the long term, such as increasing your retirement savings balance or reducing your income tax bill.
The Youth Opportunities Pilot Scheme is a scheme that allows unemployed young people in South Australia to access their superannuation for training, study or work expenses. The scheme is open to anyone aged between 18 and 30 who has been registered with an employment services provider for at least six months.
Can I take money out of my super to buy a house?
There are a few ways to go about it.
1. Use your superannuation as a deposit
This is the easiest way to use your super for housing purchases, but it’s also the least flexible. You’ll need to find a property that’s within your fund’s restrictions (usually around $500,000)and you won’t be able to use it for anything else.
2. Withdraw your super and pay the 10% penalty
This is a more flexible option, but it’ll cost you. You can withdraw any amount of money you like, but you’ll have to pay a 10% penalty on top of whatever tax you owe.
3. Take out a loan from your super fund
This is the most flexible option, but it’s also the most expensive. You can borrow any amount of money, up to 80% of the value of your property. But you’ll need to pay interest on the loan, which can be quite high
4. Take out an Unlisted Super Fund (USF).
This is the option we can give personal advice on. If your super fund doesn’t have restrictions on property investments, you can put as much money as you like into a USF then withdraw it as a housing deposit. It’s completely flexible, as long as the lender may lend to self-employed people and you can prove that your income is likely to be sustainable for 3 years.
In either case, you’ll need to speak with a mortgage broker or financial adviser to find out what’s possible and how much it’ll cost. Realistically, a lot of us won’t go ahead because it’s so expensive but if you’ve got money in super and enough equity in your home, it could be an option worth considering.”
Why a guarantor loan might be a better solution?
“If you don’t have enough money saved for a deposit, or if your credit history is less than perfect, a guarantor loan could be a better option. This type of loan is secured against your property, so the lender is more likely to give you a lower interest rate and you won’t have to pay the 10% penalty on super withdrawals. Plus, you can use the money for any purpose you like, not just housing purchases. So if you want to buy a car, go on holiday or invest in some property, a guarantor loan could be the right choice for you.”
If you’re looking to purchase your first property, there are several ways to use your superannuation savings. You can use your super as a deposit, withdraw your super and pay the 10% penalty, take out a loan from your super fund, or take out an unlisted super fund. Each option has its own set of pros and cons, so it’s important to speak with a financial adviser or mortgage broker to see what’s available to you.
A guarantor loan might be a better solution if you don’t have enough money saved for a deposit or if your credit history is less than perfect. This type of loan is secured against your property, so the lender is more likely to give you a lower interest rate and you won’t have to pay the 10% penalty on super withdrawals. Plus, you can use the money for any purpose you like, not just housing purchases.
How the FHSSS helps in the property market?
The Federal Government released the details of its First Home Super Saver Scheme (FHSSS) in December. Self-employed Australians may soon be able to save up to $30,000 into a superannuation (at concessional tax rates) then withdraw it as a first home deposit. Home buyers get in the property market sooner. The FHSSS may help you increase your savings potential, so you can meet your goals sooner.