Fueling the natural Australian family love affair with residential property and property investment, there are now strong reports that the governments flawed superannuation withdrawal scheme is being used to fund deposits as a first step onto the property ladder, or into a new property investment.
The early access provisions for superannuation were designed for the purpose of allowing those hardest hit by the COVID-19 pandemic to survive significant financial hardship and make ends meet, however many Australians (wrongly or rightly depending what they do with it!) are seeing it as a chance to get ahead, particularly on the proverbial property ladder.
Mortgage brokers across the country are confirming to industry enquiries that many loan applications in recent months include deposits of $10-$20,000 have recently been withdrawn from super.
“Over the past two weeks, myself and other brokers I work with have interviewed many prospective buyers who have accessed the $10,000 – [or] $20,000 if a couple – to use as the deposit for a home, when their income has been unaffected,” one broker said, asking for their name not to be published.
Most applicants reported their income and hours hadn’t suffered at all during the pandemic but had chosen to use the superannuation scheme to top up their deposits to try to secure a loan.
“I have even seen one case where the pandemic resulted in an increase in income and super funds were still accessed to use as a home deposit,” one Queensland-based broker said.
Such reports are yet another indictment of how poorly the superannuation scheme has been administered, as applications have been approved without due scrutiny. As many four out of every 10 withdrawals have been made by Australians whose finances have been unaffected by the pandemic, according to economic consultancy firm AlphaBeta. The figure suggests nearly 850,000 of the 2.1 million withdrawals made so far have not met the government’s own criteria.
Whether these applicants are getting approved is a point of contention, as brokers report different experiences.
“As far as I’m aware, [no lender] will accept any of it as the deposit. You need to have your deposit from other sources,” one said. “Some lenders have advised they will decline the application as soon as they see the super money, even if it isn’t needed in the transaction.”
Some brokers say that by applicants accessing their super, they have declared themselves to be in financial hardship. Responsible lending laws should, in theory, automatically bar them from getting a mortgage.
“If the borrower later claims the loan should not have been approved due to them not being able to afford it without hardship, it would be almost impossible for the lender to defend their case,” one said.
It stands to reason that those who are unemployed or have lost a significant proportion of their income probably would not be lent hundreds of thousands of dollars.
The disconnect has produced something of a catch-22. Those who withdrew super within the constraints of the scheme probably won’t be approved for a mortgage. Those who get mortgage approval probably shouldn’t have been able to get their hands on their super in the first place – at least under the government’s guidelines.
Nonetheless, some appear to be getting approval.
“Some lenders have a blanket ‘no’ policy for those kinds of applicants but some are definitely getting through,” Mortgage Choice franchisee Caroline Jean-Baptiste told Business Insider Australia.
“They tend to be the ones who would have been strong applicants in the first place, with lenders determining they can in fact service the loan.”
Although there aren’t many places in Australia where $20,000 would even pay stamp duty, a potential exists to combine different government schemes to get a foot on the ladder.
“People using their super, plus the first homeowners grant, plus the home builder program, means there’s $50,000 that could potentially go towards a house,” Jean-Baptiste said.
Source: Australian Financial Review