Lenders 'fooling' homeowners on super

ROGUE mortgage lenders are wrongly advising families to eat into their superannuation to catch up on home repayments. Financial planners and credit...

Lenders 'fooling' homeowners on super

ROGUE mortgage lenders are wrongly advising families to eat into their superannuation to catch up on home repayments.

Financial planners and credit counsellors said there was increasing evidence that lenders were selling products to new mortgage holders promising easy access to superannuation if they fall behind in repayments.

But the banking regulator warned that accessing up to $10,000 of a superannuation fund to help pay off a mortgage was subject to strict guidelines.

The NSW Consumer Credit Legal Centre said it had seen growing evidence that homeowners were being fooled into thinking they could use their superannuation to pay off debt.

"There's definitely been an increase. We hear about it all the time and a lot of credit providers suggest it to people," centre director Karen Cox said.

"We have a problem with credit providers suggesting that before exploring other options."

Under the Australian Prudential Regulation Authority (APRA) guidelines, consumers can apply for the release of one lump sum payment of up to $10,000 every year from their superannuation.

But the strict means test includes proving they cannot meet living expenses and proof that they have been on welfare for at least 26 weeks.

Financial planner Darren Johns from Align Financial said customers had been approaching him with the wrong idea about superannuation.

"The client's understanding of financial hardship and APRA's definition are poles apart," he said.

He said some lenders were more concerned about keeping their default rates down than worrying about the client's specific needs.

Superannuation Minister Nick Sherry said he was keen to hear about any lenders misadvising people in difficult financial circumstances.

"Superannuation is long-term, tax concessional saving for retirement. There are also ancillary benefits such as insurance and limited early-access provisions relating to financial hardship," Senator Sherry said.

Ms Cox said accessing superannuation should be a last resort and it was the lender's responsibility to seek out alternative options first.

"Our first option for people would be to ask their credit provider for a hardship variation," she said.

This can include a drop in repayments and an extension of the loan term, or a delay in payments could be locked in.

"If they can't work something like that out, or their situation is so serious that it is actually going to blow out their loan too much, then we would say looking at your superannuation is one option."

APRA figures released last year showed that it approved the early release of more than $135million in superannuation in 2006 - almost double that of the $76.7 million from the previous year.

The Mortgage and Finance Association of Australia yesterday denied knowledge of its members spruiking easy access to superannuation.