The Morrison government's flawed early access to super scheme has been exploited by some Australians vying to buy a home.
While intended to allow Australians to withdraw $10,000 of retirement savings to survive financial hardship caused by COVID-19, some are using it to get onto the property ladder.
Several mortgage brokers told Business Insider Australia attempts to do so have become "widespread", although most lenders are reluctant to approve these applications.
Never ones to let a pandemic go to waste, some Australians have been trying to exploit the government's flawed super withdrawal scheme to get onto the property ladder.
While the early access to super scheme was intended to allow those hardest hit by the COVID-19 pandemic to survive financial hardship and make ends meet, some see it as an opportunity to get ahead.
There's been no shortage of Australians who have taken advantage of the scheme to cobble together a home deposit as the scheme fails to properly vet applicants.
Mortgage brokers have confirmed to Business Insider Australia that they are receiving loan applications, some daily, in which a $10,000 or $20,000 deposit has been withdrawn from a superannuation account.
"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– to use as the deposit for a home, when their income has been unaffected," one broker said, asking for their name not to be published.
Several brokers who spoke to Business Insider Australia shared similar experiences, saying applicants coming from all walks of life, including mining, manufacturing, transport and even government employees.
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 in an effort 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, with applications approved without due scrutiny. As many as 40% of 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.
While the horse may have bolted, the Australian Taxation Office (ATO), which has overseen the scheme, says it is now investigating. Earlier this week, the ATO said it will add any illegitimate withdrawals to people's taxable income – effectively taking back around a third of the sum – and has threatened hefty fines.
"If you provide false or misleading information you could face penalties of more than $12,000 for each false and misleading statement," the ATO said.
Actually getting a mortgage approved is still a major hurdle
For those whose goal is the real estate market, the first true obstacle they have met actually appears to be in using their retirement savings as a deposit. While the pandemic may have seen superannuation funds lower the drawbridge, banks and lenders are more vigilant than ever as concerns grow over the possibility of an explosion in bad debts.
Whether or not these applicants are getting approved is a point of contention, with brokers reporting 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 argue that by accessing their super, applicants 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.
There are a small number who have successfully used their super as a home deposit
Nonetheless, some appear to still be getting the green light.
"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."
While 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.
"More than likely the people who are using this towards a deposit on a home have already saved up and they're just using it as a little bit of a top-up to finally be able to get into the market legitimately."
Given the amount of superannuation thought to be gambled away, putting a roof overhead may not ultimately be the worst use of retirement money.
It is, however, just another example of just how completely the hardship scheme has unravelled.
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