Don't skewer super for a house

BUYING that first home is never easy, and ideas to help young people get ahead  are floated continually.  The latest one is changing the rules to allow young people to use their superannuation as house deposit.

Apart from driving up house prices the plan has two other major faults - it ignores the true cost of home ownership and the real purpose of superannuation.

First, there is a hefty margin between the costs of renting and owning. Take a house worth $400 000 that rents at $400 a week. The tenant gets occupancy for a total yearly cost of  $20,800 - in contrast, a mortgage of $350,000 will cost at least $24,500 a year in interest alone. Then add at least $3000 a year for rates and maintenance. This means that the tenant is almost $7000 a year better off than the owner.

Obviously renters who cannot save, could end up with serious financial problems if they somehow wrangle enough money for a home deposit.

Superannuation has one major goal - to provide people with a retirement income so they won't be living on the streets in their old age when the government runs out of welfare money. How much you have when you retire depends on three factors, The amount contributed, the rate earned, and the time the money was in there. Reduce any of these and you reduce the final payout.

Suppose two people invest $3000 a year for 40 years. If one earns five percent p.a. and the other earns 10 percent p.a, the end benefits are $400 000 and $1.6 million respectively. Just doubling the rate of return quadruples the end benefit. 

This example shows that that the primary objective of anybody with superannuation is to achieve the highest returns possible - you could never achieve this if you borrow money from your superannuation account and use it to reduce your home loan.

Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd.  His advice is general in nature and readers should seek their own professional advice before making any financial decisions.  His email is noelwhit@gmail.com