Withdrawing Super To Buy Property? Think Again!
During the last few months we have seen many changes in just about everything we do with work and play due to the protracted COVID 19 lockdown – many would agree it is starting to feel like a ‘new normal’!
And amongst this all, there seems to be a large number of people tapping into their super and withdrawing the Government-approved $10,000 to help them deal with the impact of COVID 19 on their lives. And understandably, if it is assisting those in true financial hardship due to loss of income and enable them to pay for essentials such as food, power, rent etc when they have no other means.
As a result of this Government initiative, some have decided to tap into their super to use as an additional source of deposit to buy property - only to discover that they shouldn’t have! In 2018, the Government introduced the First Home Super Saving scheme (FHSS) which essentially allowed you to salary sacrifice up to $15,000 per annum of your salary towards your super, up to a maximum of $30,000 so that you could withdraw these funds plus any earnings on those funds (during that period) as additional savings to help pay your deposit for your first home.
That aside, you are not able to withdraw employer-contributed super funds to use as a deposit on a home – the purpose of super has been designed as an additional form of savings with minimal tax payable, to then benefit from the potential growth of your super ’nest egg’ on retirement.
Many first home buyers have taken advantage of the FHSS scheme and successfully purchased their first home as a result, however there seems to be a growing number of misinformed younger Australians who believe they can legitimately withdraw money from their super account and use these funds to buy property. Unfortunately, they discover the hard way that many lenders will immediately decline their loan application much to the surprise of the borrowers.
The reason is simple; to be eligible to withdraw from your super you need to declare and prove that you are ‘currently in or anticipate you will be financial hardship’, as the reason you are wanting to access your super. Within weeks after having received these funds, some have applied for a home loan claiming the super funds are actual savings when in fact they are not! Hence these applications will be declined (rightly so) simply because the applicant has not been totally truthful in their declaration to withdraw super funds. The banks regard this as a form of fraud. It really is that simple, as it goes towards the character of the applicant having made a false declaration.
So in our opinion, don’t do it – it’s not what your super is designed for. There are already many cases where these super funds have been clawed back and returned into the original super pool with fines on top.
The RBA kept the cash rate as is again this month which was no surprise, with the record low 0.25% cash rate continuing for some time. The general consensus is many first-time buyers are entering the market during this period. So, if you are ready to get started with your home loan pre-approval application,I am available on 0438 041 111 or on email at email@example.com for a confidential discussion.
Please enjoy our articles this month … riveting reading for all!
As always, enjoy life, work hard, play safe and remember that we are always here to help you
‘Take the Confusion Out of Lending’
All the Best
Peter Vinci - 0438 041 111