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First home buyers could soon use superannuation to buy property; Nick Xenophon will introduce legislative changes in the spring session of parliament
Topic Started: 28 Jul 2014, 05:33 PM (16,488 Views)
peter fraser
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Sober
29 Jul 2014, 11:41 PM
If that's the case, then the bank (mortgage provider) will want their pound of flesh (i.e. a considerably higher interest rate) for being 2nd mortgagee on the property. And in turn, the LMI provider will want a higher premium to guarantee against mortgagor default, given that the FHB will not necessarily have shown a sustained pattern of savings.

Really, the whole thing doesn't work unless the superfund contribution sits no higher in the food chain than a 2nd mortagee.
I don't see this idea working at all.

In the first instance mortgage insurers don't like borrowed money being used as a deposit, and essentially this is borrowed money if it has to be repaid back into the super fund.

Secondly any repayments then become a drag on serviceability. Lets assume that people who can't save a deposit in the normal way use this as an alternative - the usual reason that they can't save is that they don't have the income to allow them to save, so serviceability is their problem and this has just made it worse.

If banks do take a 2nd mortgage position then it will become unworkable as you suggest, with higher rates and LMI costs.

I give the senator 10 points for being concerned and wanting to make it easier for young people to buy a home, but I give him -10 for application, and it's the lack of practicality that counts.

My score is minus 10.
Any expressed market opinion is my own and is not to be taken as financial advice
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Dr Watson
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peter fraser
30 Jul 2014, 02:06 PM
I give the senator 10 points for being concerned and wanting to make it easier for young people to buy a home, but I give him -10 for application, and it's the lack of practicality that counts.

My score is minus 10.
I agree Peter. I think his intentions are good. But the road to hell is paved with good intentions. It begs the question: how much time has he spent in the real world? Getting dirt under his fingernails, so to speak?
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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Massive
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I'm more cynical .. Believe these senators know exactly what they are proposing - directing more available capital towards property - under the guise of being sympathetic to fhb ..

All pollies know making life easier for fhb pretty much entails limiting capital gains on their own properties.. It's the one vested interest pollies will never be called up on as having bias towards as u can't ask them to go without property .. So instead they devise schemes to help current crop of fhb right now that will also help their own asset appreciation and kick the can down the road regarding consequences of said policy .... ( ie. lower affordability )

It's probably the way it will continue to play out as long as it can be
Edited by Massive, 30 Jul 2014, 02:30 PM.
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Dr Watson
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Massive
30 Jul 2014, 02:28 PM
All pollies know making life easier for fhb pretty much entails limiting capital gains on their own properties..
It's an interesting theory to suggest that Xenophon might be motivated by the capital appreciation of his house while hiding this agenda behind a veneer of altruism for FHB.

But I doubt he is desperate for a quid. For Xenophon was elected to the Senate in 2007. A senator's annual salary is almost $200,000. He's wealthy. He doesn't need to ramp up the value of his house.

I reckon this is more likely to be a stuff-up than a conspiracy.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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Robert
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Unaffordable property is at the crux of most of our problems here in Oz.

Only the fucking parasites benefit from unaffordable housing and we have let this game go on for way too long. Far too late for an orderly wind down.

Which is why recessions are a very natural part of the business cycle – the pause that refreshes!

Us Australians without a natural clearing event for coming up to 23 years means we live in la de da fairy land where reality has been replaced by our own version of the great ‘Rent-Seekers’ paradise.

Too late for a non-seismic re-adjustment we have allowed this thing to distort practically everything here in Australia.

So screw all the vested interests (they have been screwing us all for way too long) – let us have a good old fashioned rollicking recession. There is really no alternative left.

I have been around a long time and have lived through my fill of recessions – still fine after all that and guess what – they taught me quite a few lessons to boot.

About time we all got some new life skills – how to behave and act when the shit hits the fan.

Coming to a town near you soon.
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Massive
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Its not a conspiracy ... It is and always will be a grey area as anyone in a position to dictate policy on property arguably already has vested interest in it .. And in unlikely event they don't then almost certainly family friends and contributors do ..

People who earn 200k a year will still tell u they r middle class ... Im sure not many would sign an agreement that will cause their or their families wealth deteriorate .. Its human nature ... Salary is nothing compared to money / lifestyle earned through wealth accumulation ...

So as a result end up with bandaid policy suggestions over what is essentially a growing cancer
Edited by Massive, 30 Jul 2014, 02:47 PM.
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RED RAGE!!!
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A flaming skull, I have become an apocalyptic flaming skull after reading this article.

These self-serving parasites don’t need a little holiday in China to see what’s happening IN THIS COUNTRY.

They need to put down their Pinot Grigio, get off their overpaid ar#ses, out of Tetsuya’s and see what is happening here.

I paid my BAS a couple of days ago and this is where our tax dollars are going? This?
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Admin
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Using retirement savings for homes a super bad idea

By Michael Janda
Wed 30 Jul 2014, 8:30am

Allowing first home buyers to access their super to buy a house is a bad idea. All it will do is further lift the price bar that new buyers need to jump over, and debt will be the pole they use to vault it, writes Michael Janda.

The problem when politicians have thought bubbles is that they can take on a life of their own.

Australia is heading for what many - including the Government's own Commission of Audit and Productivity Commission - see as an overly expensive paid parental leave scheme due to an apparent thought bubble from the then opposition leader that had not been run past his own shadow cabinet.

This week, independent Senator Nick Xenophon had a thought bubble undoubtedly a lot more dangerous to the Australian economy.

Senator Xenophon's bright idea is to allow first home buyers to access part of their superannuation savings to put towards buying a property.

Like many thought bubbles, at first glance it looks like a great idea.

First home buyers are now estimated to be about a record low 12-13 per cent of the current owner-occupied housing market, and just 7-8 per cent when investors are added into the mix.

States have also wound back schemes that gave buyers a $7000 leg up when purchasing their first home - most of these grants have now been restricted to newly constructed properties.

However, these very First Home Owners Grant (FHOG) schemes provide the best evidence of why Senator Xenophon's idea is simply a recipe for higher prices and worse housing affordability.

About four years after the FHOG was introduced, ostensibly as compensation for the impact of the GST on the price of new homes, the Productivity Commission completed a report into first home ownership.

That report concluded that the extent to which such grants assist first home buyers into the market depends largely on how much they push up prices. This in turn, the commission said, depends on the how quickly the supply of housing can rise to meet extra demand.

Over the four years after the FHOG was introduced, median home prices rose 18 per cent per annum - this is the era in which the damage was really done in terms of Australia's house price to income ratios.

The Productivity Commission's conclusion was that relatively little of this price increase was due to the grant, due to its relatively small size of $7000, and it is true that the discount on capital gains tax introduced around the same time also played a big role (as I have written previously).

However, the commission appears to have overlooked the role of leverage - something pointed out by economist Steve Keen when discussing the significant demand and price impacts of the Rudd Government's First Home Owners Boost (FHOB) during the global financial crisis over late-2008 and 2009.

Basically, giving first home buyers an extra $7000 potentially allows them to pay $35,000 more for a property - the grant money towards a bigger 20 per cent deposit and then four times the grant money in extra debt.

There is no reason that Senator Xenophon's scheme would have a different effect.

If first home buyers can pull $25,000 out of their super to stump up towards their deposit on a home, then they can leverage that up with their bank to pay $125,000 more for the home.

If tens of thousands of first home buyers do that, then you end up with further massive increases in home prices and household debt. If the people that sell their homes to the first time buyers then go and leverage those profits to reinvest in property the effect will be further magnified.

Just as with the FHOG and FHOB, all this proposal is likely to do is further lift the bar that new buyers need to jump over, and debt will be the pole they use to vault it.

Not only that, but they will have to either repay the money they have borrowed from their super (as in the Canadian scheme, where this is done over 15 years) or see part of their retirement savings tied up in home ownership.

Given how much of Australia's household wealth is already tied up in home ownership, this is a frightening prospect - just ask any decent financial planner or investment manager about the benefits of portfolio diversification.

Undoubtedly, much of Australia's home price problem is related to the impediments for housing supply to respond to demand - due to slow planning processes and other impediments.

However, it would be folly to exclude demand from the equation - Australia's home price to rent ratio is the fifth highest amongst developed countries. Demand for ownership outstrips demand for rental accommodation largely because of the tax breaks and incentives that favour those who buy, either for owner-occupation or to lease out.

The Housing Industry Association has backed Senator Xenophon's thought bubble enthusiastically, because an increase in demand means more new property sales at even higher prices for its members.

So while the Senator might have had the best intentions of helping first time buyers into the market, he'd be much better off pursuing policies that reduce demand for buying property (such as ending some of the less equitable tax breaks like negative gearing) rather than one that will simply pump up Australia's latent housing bubble further and tie the nation's fortunes even more closely to its over-priced real estate market.

Read more: http://www.abc.net.au/news/2014-07-30/janda-using-retirement-savings-for-homes-a-super-bad-idea/5634014?section=business
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Admin
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Time to allow first home buyers access to superannuation: HIA

Jennifer Duke | 30 July 2014

The Housing Industry Association has said that it’s time to allow young buyers access to their superannuation savings to assist with a deposit in getting into a new home, saying that it would also assist them in retirement.

HIA executive director, industry policy and media, Graham Wolfe, said that superannuation contributions are a form of forced savings to assist in retirement.

“Owning a home delivers the same result, but with the added benefits arising from home ownership throughout their working lives,” said Wolfe.

“Many young people are busy working, renting, repaying their education costs and in many instances, raising a family,” he said.

“Saving for a deposit at the same time is a significant challenge.”

He noted that enabling access to a portion of their superannuation will allow many first home buyers to accumulate a deposit, redirect their rental payments to their own financial security and allow home ownership sooner.

“Accessing superannuation for a home deposit would provide temporary access to their personal savings. Provided it was repaid to their superannuation accounts over a period of time, similar to university HECS repayments, their retirement savings would be assured,” he said.

“HIA urges all stakeholders to support measures aimed at improving access to home ownership for first home buyers, including assistance in breaching the deposit gap.”

Allowing first home buyers access to their superannuation is something that has been previously encouraged by the Real Estate Institute of Australia for some years, including in their submission to the last government budget.

It would follow New Zealand and Canada, who currently allow this.

However, last time Property Observer surveyed our panel of experts about whether following Canada’s first home buyer schemes would work for Australian first time buyers, most said that there are other fundamental issues that should be addressed before allowing them to tap into their superannuation.

Read more: http://www.propertyobserver.com.au/finding/residential-investment/1st-home-buyer/33904-time-to-allow-first-home-buyers-access-to-superannuation-hia.html
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vdmruss
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This is the last rabbit in the hat.

On the other hand if they do allow this, there will be no pension fund for the government to raid. :dry:
Let me assure you that this isn't one of those shady pyramid schemes that you've been hearing about. No sir, our model is the Trapezoid which guarantees each investor an 800% return within hours.
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