When the government announced the early release to superannuation as part of their economic response to the Covid-19 pandemic, many Australians breathed a sigh of relief. With panic, stress and uncertainty at an all time high, many saw the ability to access $10,000 in FY20 and a further $10,000 FY21 as the financial contingency they needed.
Whilst many saw the transfer of funds from super accounts into personal transactional account as a safety net, many thought they could use the funds for other purposes, including a home loan deposit.
Can I use my superannuation for a home loan deposit?
Initially, there was some confusion around what people could use the early release superannuation for, particularly among first home buyers. Some thought investing or buying property with super funds was purely a change in asset class, from super to property, but with all initiatives by the government, it must be used as it was intended.
The Australian Government implemented the initiative to help permanent residents of Australia and New Zealand who had been adversely financially affected by Covid-19, particularly those who had been made redundant, lost their job or had their working hours reduced.
The money was supposed to be used to pay their rent, mortgage, utilities and purchase essential items for day to day living, not to go towards a deposit for a property.
With this in mind, lenders are now reviewing applications extensively to ensure that borrowers don’t utilise any superannuation withdrawals as a deposit for a new property purchase.
Why is my superannuation not acceptable for a home loan deposit?
Essentially, superannuation withdrawals are not genuine savings. The sudden deposit of funds into your personal account doesn’t show financial management, whereas a steady accumulation of savings shows financial responsibility which helps prove that you will be able to manage a mortgage when the time comes.
The withdrawal of superannuation is by its nature, deemed to support financial hardship. And the last thing you want to do when applying for a home loan is to be identified as someone in financial hardship as it will be difficult to prove that you are able to pay a mortgage off.
What happens if I’ve already withdrawn my superannuation and I’m applying for a home loan?
Your home loan application will still proceed as planned, as long as you aren’t relying on the superannuation as part of the deposit. Any lump sum payment into your account will be questioned by the lender regardless of where it comes from. For example, if you recently sold your car, the lender will ask for proof that you sold it.
However, it does depend what percentage you are borrowing from the bank. If you are only borrowing 80%, there source of your deposit becomes less concerning for the lender. Whereas, if you were to borrow 95%, the bank will scrutinise the sources of your deposit more closely.
How did Australians spend their early release superannuation?
Data from illion.com.au shows that 38% of people who accessed superannuation saw no drop in their income during the Covid-19 crisis. Because there was no requirement for documentation to prove income loss prior to accessing their superannuation early, many people accessed the funds to boost their personal cash flow and make life in lockdown a little more enjoyable.
The majority of the money in both the first and second withdrawal rounds was spent on discretionary items. Whilst spending on groceries and debt was top of the list in round two, spending on gambling was the second highest item round one superannuation withdrawals were spent on.
Overall, the early release superannuation initiative did do what the government wanted it to do. The money did help those who were in financial hardship and it also boosted consumer spending, helping to keep some businesses afloat during lockdowns.
Need to know more about Covid-19 early release of super?
If you have been adversely financially affected by Covid-19, you may be able to access some of your superannuation early.