Top marks to Peter Martin for this week’s detailed analysis of the benefits of allowing access to superannuation to help achieve home ownership.

Compulsory super and unlimited negative gearing tax deductions are combining to put home ownership out of reach for many Australians.

Without family assistance, even with financial institutions prepared to offer high Loan Valuation Ratios (LVRs), many Australians struggle to achieve home ownership in today’s inflated markets.

Bitten by the housing collapse in the GFC, even though the US provides an income tax deduction for interest on loans up to $1 million, their financial institutions now require deposits of up to 25 per cent of conservative valuations.

Even with low interest rates, high LVRs on expensive purchase prices still involve large loan servicing costs out of after-tax income for our home buyers. Compulsory super increases their cash flow problems by diverting at least 5 per cent of their gross income annually into an investment that is untouchable until at least age 60.

Moreover, high levels of borrowing leaves little room available to cope with unexpected developments such as unemployment of one or both partners or a need to reduce workforce participation for family reasons.

Australia’s hardship super provisions are particularly cruel in limiting the amount available to be withdrawn from super to $10,000 which, believe it or not, is taxed at up to 22 per cent.

No wonder younger Australians or those with uncertain job prospects have little incentive to make voluntary contributions to super. So far, the debate started by the Treasurer has focused on withdrawing money from super to be used to achieve home ownership. That, however, is not a sensible or efficient option.

The money could still be left in super and used to help achieve home ownership by being invested in a mortgage offset account owned by the super fund. This option has a much lower cost to government than first home owner grants or allowing people to withdraw part of their money from the fund.

The average super income tax rate is less than 10 per cent and even if 1.5 million Australians had an average $50,000 each of their super invested in a mortgage offset account (a total of $75 billion or about 4 per cent of total fund assets), the loss in tax revenue would at a 5 per cent interest rate be around $375 million annually.

This is less than 15 per cent of the annual outlays on negative gearing or equivalent to giving 25,000 first home buyers annually $15,000 each.

Far from being unaffordable as some critics are arguing, allowing access to super to help fund ownership via mortgage offset accounts is a low cost way to help Australians achieve home ownership and is well worth detailed consideration.


4 comments

    • Clemon

    • February 7, 2016

    • 5:39 pm

    • Reply

    This is just what I am looking for. I am late starter in life with a $250,000 mortgage. With about $50,000 in super that is not growing much apart from what my employer puts in and completely useless to me now. It makes sense to put super into an offset account. Where are we at with this?

      • Daryl Dixon

      • February 8, 2016

      • 4:51 am

      • Reply

      Thanks for the message Clem. I am still trying to get the politician’s interested and will keep trying. But so far the concept hasn’t taken off and no one has been prepared to push the idea.

    • Glen

    • September 18, 2017

    • 12:43 am

    • Reply

    I recently looked into offsetting a mortgage against the super balance and couldn’t believe that it isn’t allowed. A large amount of capital locked away in super that keeps growing as the employer and employee keep adding more capital year on year?

    The only reason that I think that this hasn’t taken off is that the mortgage lenders and super funds don’t want it to happen.

    It would be good to see a worked out costing comparison of a mortgage in a high street bank with normal super vs. the option of offsetting super vs mortgage credit costs – it would be good to see what method would lead to the best lifetime net financial position.

    If you want the Pollies to support it you will need to provide a simple guide that spells out why this would be a vote winner and good for all.

    • Daryl Dixon

    • September 21, 2017

    • 5:32 am

    • Reply

    Thanks you for your feedback Glen. I have done some financial modelling but not as detailed as you have suggested. So far, my modelling has focused on the benefits from reducing a mortgage more quickly and at a lower cost to government than first home owner grants and other subsidies to improve affordability. I will certainly look at your suggestion.

Leave a Reply