By Peter Hunt
Using superannuation savings to provide the deposit as a means of entering the housing market appeared to have been put back into its box but seems to have escaped again, with the likes of Scott Morrison spruiking the idea. As someone who recently joined the ranks of the self-funded retirees, believe me, for peace of mind you need two things in retirement; a secure, well maintained roof over your head and a reliable modest income (assuming you have or can adopt modest life style). One without the other is useless and relying on making a bumper profit from ‘downsizing’ on retirement is a high risk strategy.
Using Super to overcome the barriers to property ownership can work though, providing you use someone else’s, e.g. your parent’s super. Think about it, by the time young people are ready to enter the housing market many parents will have been paying into super for over 30 years and should have a reasonable balance. At this stage wisdom has it that you should ring-fence at least part of your savings by placing them into less risky investments, and what better than a mortgage for someone you know and love (presumably). Whilst the Banksters pay depositors at best about 3% they offer mortgages at 5.5% and generally much more. Why not cut the Banksters out of the loop and lend direct? 5.5% matches or beats the return on most super funds ‘conservative’ funds.
As a partner will most likely be involved and no one can be sure that the partnership will last the term of the loan a legal charge should be created to ensure the safety of your funds just in case the relationship goes bad but apart from that it’s win win.
In the UK in 2016, it was estimated that “The Bank of Mum & Dad” was helping to finance 25% of mortgages to tune of £5bn making it a top 10 mortgage provider (Press Association, Tuesday 3 May 2016 07.45 BST). Unfortunately, given current Australian house prices few parents will be in a position to lend the full amount required and the Banksters will insist on having the primary charge on the property, but at least the rate and total interest paid to these criminals can be reduced by lowering the amount borrowed from them. If the LNP really wanted to do something to help Gen Y into property perhaps they could address this, e.g. creating special rules giving super funded loans equal status to the banks loans. Beware, in the UK the Banksters worried at losing out are offering special deposit accounts where, if parents deposit a certain amount at minimal interest, they, the banks, will provide a full cost mortgage to their children. Why would you?
Of course the sensible solution would be to address one of the main causes of soaring house prices by tackling the issues of negative gearing and capital gains tax discounts but as the ALP has proposed this sensible approach, the LNP have to rubbish it just as they did with the NBN, replacing the ALP’s high speed fibre to the home with an antiquated, high cost, low speed mongrel solution that is currently being ripped out and replaced with full fibre in countries like Germany and the UK. Or carbon pricing, the best option to tackle CO2 emissions according to just about every expert in the field. The LNP have taken Australia from world leaders to laggards and are an embarrassment with their ‘clean coal’ fantasy, passing lumps of coal around the floor of parliament. Carbon capture and sequestration can work, it has been perfected by nature over the last 300 million years, it’s called coal and massive amounts of carbon can be sequestrated safely, indefinitely, by leaving it in the ground so that our children and theirs can enjoy a good life on a healthy planet in their family group funded homes.
(This article is the opinion of the author only and does not constitute financial advice).
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