Tax Cuts Will BOOST Borrowing Power by $$$
Summary
TLDRThis week's episode of 'Finance and 175' discusses significant federal budget updates for first-time home buyers, including tax cuts that could enhance borrowing power. It examines the housing affordability crisis, the gap between wages and property prices, and explores affordable suburbs in Perth. The show also covers the government's $6.2 billion housing package, the impact of student debt relief, and Western Australia's ban on rent bidding, aiming to provide insights and strategies for navigating the property market.
Takeaways
- 🏠 The federal budget announcement includes tax cuts that could boost borrowing power for first home buyers.
- 📉 Borrowing capacities have fallen by about 30% since interest rates started rising in May 2022, and the tax cut aims to help recover some of this capacity.
- 💰 Home buyers with different income levels could see their borrowing capacity increase by up to $25,000 to $40,000 depending on their earnings.
- 📚 Student debt relief is introduced, with the interest rate on HELP debts reverting to 3%, making it easier to pay off student loans and potentially increasing home buying capacity.
- 📈 The tax cuts are expected to stimulate the property market, as increased borrowing capacity may lead to higher house prices in the future.
- 🏢 The government's $6.2 billion housing package aims to boost the supply of affordable housing and includes infrastructure investments to unlock new housing supply.
- 🚫 The budget has received mixed reviews, with critics arguing that it doesn't go far enough in addressing the core issues of the affordability crisis.
- 🛑 The 'Help to Buy' scheme is being negotiated to pass through the Senate, which could assist Australians in home ownership by contributing up to 40% of the home's purchase price.
- 💹 There is a significant gap between wage growth and property prices, with home prices in capital cities growing by 93.5% while wages only increased by 34.7% over the past 12 years.
- 🌆 Perth offers some affordable housing options with suburbs where the median house price is $350,000 or less, providing opportunities for first-time buyers.
- 🚫 Western Australia has introduced a ban on rent bidding, which is expected to make the rental market fairer and potentially reduce competition for first-time home buyers.
Q & A
What is the main topic of discussion in this week's episode 175 of the property and finance series?
-The main topic of discussion is the latest federal budget announcements and their impact on aspiring homeowners, including tax cuts that could boost borrowing power and a housing package aimed at addressing the affordability crisis.
How have borrowing capacities been affected since interest rates started rising in May 2022?
-Borrowing capacities have fallen by about 30% since interest rates started rising in May 2022, making it more challenging for potential homeowners to enter the market.
What is the significance of the federal tax cut starting from July 1st for taxpayers?
-The federal tax cut is significant as it will provide a tax reduction to every taxpayer, which can potentially increase their borrowing capacity, making homeownership more attainable.
How much could the tax cut increase the borrowing capacity for a home buyer with an income of $100,000?
-A home buyer with an income of $100,000 could see their borrowing capacity increase by about $25,000 due to the tax cut.
What is the impact of the student debt relief announced in the budget?
-The student debt relief will revert the interest rates on HELP debts (formerly known as HECS) or VET student loans from 7-8% back to 3%, making it easier and quicker for individuals to pay off their student loans.
How does paying off student loans before applying for a house impact one's buying capacity?
-Paying off student loans before applying for a house can significantly increase one's buying capacity, as the amount of money paid off is based on income, not the debt amount.
What is the potential market impact of the tax cuts announced in the budget?
-The tax cuts are expected to stimulate the market by increasing borrowing capacity, which may lead to higher house prices due to increased demand.
What is the government's approach to addressing the housing affordability crisis through the budget?
-The government has unveiled a $6.2 billion housing package, which includes investment in affordable housing and infrastructure to boost the supply of new housing.
What is the criticism regarding the new funding for social housing in the budget?
-Critics argue that the new funding for social housing is repackaged from existing funds, offering loans instead of direct grants, which may not be as effective in addressing affordability.
What is the 'Help to Buy' scheme mentioned in the script, and how could it impact home buyers?
-The 'Help to Buy' scheme is a government initiative that could potentially help Australians into homeownership by contributing up to 40% of a home's purchase price in exchange for a proportional interest in the property.
What are some of the suburbs in Perth where the median house price is $350,000 or less?
-Suburbs like Osborne Park, West Perth, and Hamilton Hill are examples of areas in Perth where one can find homes with a median price of $350,000 or less.
What is the recent change in Western Australia that could benefit first-time home buyers?
-Western Australia has introduced a ban on rent bidding, which is expected to level the playing field for first-time home buyers and potentially reduce competition in the rental market.
Outlines
🏠 Federal Budget Impact on Homebuyers and Tax Cuts
This paragraph discusses the recent federal budget announcements and their impact on aspiring homeowners, particularly focusing on tax cuts that could enhance borrowing power. Since interest rates began rising in May 2022, borrowing capacities have dropped by about 30%, and the new tax cuts aim to recover some of this capacity. Starting from July 1st, all taxpayers will receive a tax cut, with the exact amount varying based on income. For instance, a homebuyer with a $100,000 income could see an increase in borrowing capacity by around $25,000, while someone earning $150,000 could gain up to $40,000. This measure is expected to aid first-time buyers and those seeking more affordable properties, although it may not benefit those aiming for high-value properties. The budget also includes student debt relief, which will reduce the interest rate on HELP and VET student loans from 7-8% to 3%, easing the repayment process and potentially increasing borrowing capacity for home purchases.
📈 Mixed Reactions to Housing Package and Affordability Concerns
The budget's $6.2 billion housing package has received mixed reviews. While it includes investments in affordable housing and infrastructure to boost housing supply, critics argue that the funding for social housing is not new but repackaged, offering loans instead of direct grants. This approach may not be as effective in addressing the core affordability crisis, which is largely a supply and demand issue. Additionally, the government's 'Help to Buy' scheme is under Senate review, with potential opposition. If passed, it would allow the government to contribute up to 40% of a home's purchase price in exchange for a proportional interest in the property, potentially benefiting home buyers. However, the focus on infrastructure in the budget is seen as a long-term strategy that does not offer immediate relief for those struggling to find affordable homes or rentals. The chronic undersupply in the market is identified as a key issue that needs addressing to alleviate the housing crisis.
💼 The Growing Gap Between Wages and Property Prices
This section highlights the widening gap between wages and property prices, which has been a significant issue over the past 12 years. Home prices in capital cities have grown by 93.5%, while wages have only increased by 34.7%, creating a significant disparity. Factors contributing to this divide include low-interest rates, rapid population growth, and parental assistance in the form of gifts, guarantees, or inheritances. Despite the challenges, there are still pathways to homeownership. Strategies such as adjusting expectations, considering alternative locations, and seeking professional advice are recommended. The government also offers grants for home purchases, even with non-direct family members, providing opportunities for those looking to enter the property market.
🏘️ Affordable Housing Options in Perth and Rental Market Reforms
The final paragraph explores affordable housing options in Perth, which is currently one of the most affordable cities in the property market. Suburbs like Osborne Park, West Perth, and Hamilton Hill offer median house prices of $350,000 or less for units and small apartments. These areas are well-located, with proximity to the CBD, beaches, and good amenities. Investors have historically been attracted to these areas due to low prices and high yields. For first-time buyers, there is also good news with the recent ban on rent bidding in Western Australia. This practice, where tenants bid against each other to secure a rental property, has been deemed unfair and is now illegal, with violators facing a fine of up to $50,000. This change is expected to stabilize the rental market, reduce competition for first-time buyers, and make the rental market more predictable and fair.
Mindmap
Keywords
💡Federal Budget
💡Tax Cuts
💡Borrowing Capacity
💡Housing Affordability Crisis
💡Student Debt Relief
💡Help to Buy Scheme
💡Infrastructure Boost
💡Rent Bidding
💡Wage-Property Price Gap
💡Affordable Suburbs
Highlights
The latest federal budget includes tax cuts that could enhance the borrowing power of aspiring homeowners.
Since May 2022, borrowing capacities have dropped by approximately 30% due to rising interest rates, but the federal tax cut may help recover some of this capacity.
Every taxpayer will receive a tax cut from July 1st, with the exact amount varying based on income.
A homebuyer with a $100,000 income could see their borrowing capacity increase by around $25,000.
For those earning $150,000, the borrowing capacity could increase by up to $40,000.
The tax cuts are expected to stimulate the property market as people gain more borrowing capacity.
A $6.2 billion housing package has been unveiled in the budget, with mixed reviews regarding its effectiveness in addressing the affordability crisis.
The government is investing in social housing and infrastructure to boost the supply of affordable housing and unlock new housing opportunities.
Critics argue that the new funding for social housing is merely repackaged existing funding, offering loans instead of direct grants.
The 'Help to Buy' scheme is currently being negotiated, which could see the government contributing up to 40% of a home's purchase price.
The focus on infrastructure in the budget is a long-term strategy that may not provide immediate relief for those seeking affordable homes.
The gap between wages and property prices has been widening, with home prices in capital cities growing by 93.5% while wages increased by only 34.7%.
Adjusting expectations, looking at alternative locations, and early planning can help navigate the market for homebuyers.
Government grants are available for homebuyers, including those purchasing with friends or non-direct family members.
Perth offers suburbs with median house prices of $350,000 or less, providing affordable options for homebuyers.
Suburbs close to Perth's CBD, with beaches and good amenities, can still be found with median house prices under $350,000.
Western Australia has introduced a ban on rent bidding, which could make the rental market more predictable and fair.
The ban on rent bidding may reduce competition and make the rental market more appealing for investors, potentially benefiting first-time homebuyers.
Hunter Galloway, as a mortgage broker, offers help to homebuyers across Australia in understanding their situation and finding suitable loan options and government grants.
Transcripts
welcome to this week's 175 we give you
the latest on property and finance let's
cut through the jargon grab a coffee
let's dive in yeah right this week we're
diving into some big news for aspiring
homeowners we'll break down the latest
federal budget announcements including
some tax cuts that could boost your
borrowing power a housing package that
aims to address the affordability crisis
we'll also take a closer look at the
widening gap between wages and property
crisis and we'll explore some affordable
suburbs and Perth for those with a tired
of budget let's get started all right so
let's up to the huge news this week the
federal budget has just been released
and there's some big changes actually
for first home buyers which specifically
with the tax cards could mean your dream
of owning a home is a bit closer
absolutely you know Jaden borrowing
capacities have fallen about 30% since
interest rates started Rising back in
May 2022 and this federal tax cut is
actually going to help to sort of claw
back some of that borrowing capacity so
no matter how much money you make every
tax payer will get a tax cut from July
1st under these updated stage three tax
cuts I mean the exact amount will change
depending on how much you earn but you
know everybody's going to get something
from this yeah it's pretty huge so a
home buyer with say $100,000 income
could see your borrowing capacity
increase by about 25,000 someone earning
150,000 could increase your borrowing
capacity by up to $40,000 so it can make
a big difference it could be difference
between you missing out on a property
and getting into the market and just
help bridge the gap there that we've
seeing from those rate Rises I mean this
is great for first home buyers and
people looking to look for those more
affordable properties as well you know
if you're looking to buy a $2 million
property these tax cards probably aren't
going to be much of a benefit to you but
for people who are just starting out
this is a huge benefit it's a huge
little extra bit of money in your pocket
that can go towards the deposit for your
home the other one that was a big change
from the government is the student debt
relief so if you got hex or help last
year you would been hit by that huge
indexation in some people's cases it
went up by more than it was paid off so
there's going to be debt relief back
data for anyone that had help hex as it
used to be called or vet student loans
so they're going to basically change so
instead of getting paid 7 or 8% it's
going to go back to 3% going to help cut
down that balance and help you paid off
a little bit quicker yeah and what's
interesting with this is that it's not
going to actually change your borrowing
power immediately so you know the amount
of money that you pay off on your your
hex or help debt is based on how much
money you're earning but what it does do
is it will make it easier to pay off
those student loans so if you can go
through and pay off those loans before
applying to buy a house then that really
puts a big bump up on your buying
capacity as well yeah it's one thing we
we do tackle so when it's time you don't
need to worry about now but like Simon
said your hex impacts your buying
capacity not by how much you owe so if
you owe 80,000 if you owe 8,000 it
doesn't impact your Mar capacity as much
as your income because whether you have
hex or not the bank will calculate your
payments based on income so we can get
into the sort of manua on that if you're
looking for home now as mortgage brokers
we can go through and give you advice on
paid off this is what it means your
buying capacity or not but like Simon
said in the short term it's good news
because it just means you can help chip
away at that and pay off a little bit
quicker absolutely let's just run
through some key takeaways here you know
one of the things that I think is not
always obvious to people is these tax
cuts are going to stimulate the market
because people are going to have more
borrowing capacity it means that people
can afford to pay a little bit more for
a home if you are looking at potentially
buying a house in the near future it's
probably a good time to move forward
with that because otherwise in a few
months time you'll see increased
stimulation on house prices because of
this extra boring capacity it's kind of
always one of these difficult situations
things that go towards making houses
more affordable can also bump up prices
especially if we don't have the housing
Supply I mean this is kind of a
short-term boost uh to your borrowing
capacity but there's probably a window
of where this will actually help you to
take action on buying a home as well
yeah so we've talked about tax cuts that
potentially boost your bring capacity
but what about affordability it's
obviously been a big issue that's been
talked about um the budget unveiled a
$6.2 billion housing package but I guess
it's a bit of a mixed bag they have said
they're going to invest in affordable
housing so the government's trying to
put money in initiatives to boost the
supply of affordable housing there's a
bit of an infrastructure boost there so
they're going to invest a further
billion dollars in the states and
territories to put roads and do other
housing infrastructure so we need that
to to unlock the supply of new housing
and I guess in some ways it's good other
ways it could put more pressure so what
are some of the negatives of this sort
of package sment yeah it's got some
mixed reviews here some people are
basically saying that you know this new
funding for social housing is really
just kind of repackaged what's already
existing because they're offering loans
instead of providing real funding it's
not as useful in terms of helping with
affordability you know uh direct grants
actually can have more impact than loans
themselves and some people are also
saying that it doesn't go far enough
that doesn't go enough to address the
core issues of the affordability crisis
which ultimately is based around supply
and demand I think it's also worth
mentioning here that the help to buy
screen which was introduced by the
government last year is actually
currently being negotiated to pass
through the Senate there's some
opposition here from the Coalition the
greens but if this does take effect then
this would also see the government help
Australians into home ownership by
making a contribution of up to 40% of
the home's purchase price in exchange
for a proportional interest in the
property so if that makes it through
that's also going to make a big
difference to home buyers in the near
future yes so I think the unfortunate
thing with the budget at the moment from
the lens of a first home buyer or if
you're trying to get into the market is
the focus on the infrastructure side of
things is a long-term strategy but it's
probably what's not going to apply any
immediate relief to people that trying
to find affordable homes or even
affordable rentals in the short term
some of the student housing regulations
with even reduction of student visas
potentially might help put a bit more
Supply in the market there and there's
less rentes in the short term but it's
definitely one that it doesn't look like
there's going to be any sort of
immediate relief coming out from this
budget need to be a bit more done to
help you reduce some of the tariffs and
then cost and the taxes for developers
to make more stock it's really
undersupply chronic undersupply stock in
the market yeah unfortunately you know
that this housing crisis housing issue
hasn't just suddenly come up within 12
months this is something that has been
building up for quite a long time and he
fixes to it unfortunately are also
likely to take quite a long time to take
an effect so I mean I think it's
actually a good thing that the
government is investing on the
infrastructure to allow the unlocking of
future housing Supply even though it
doesn't really help in the short term I
think hopefully in the future this will
go towards increasing Supply and making
it easier for people to get into a home
all right so we covered budget impacts
on both borrowers and broader Market but
there's another Gap I guess or another
elephant in the room and that's gap
between what we earn and what it costs
to buy a home like it's a tough reality
this this affordability is is growing
and growing yeah I think this is what
why some people are critical of the
recent government's budget because you
know there's a huge divide that's been
happening over the past 12 years or so
you home prices have grown by
93.5% in Capital Cities and wages have
only increased by
34.7% so massive disparity there yeah
it's been exacerbated by obviously over
the last 12 years been really low
interest rates been rapid population
growth the bank of mom and dad
phenomenon where you know parents are
helping either with a gift or a
guarantee or with inheritance to help
people into the market so there are some
big squeezes here that are making it
harder but it's not all bad news right
Simon no it's not all bad news I mean it
can seem daunting but there's always
Pathways to home ownership you know
there are still plenty of people who can
are out there finding homes to buy and
achieving their their goals of home
ownership so I think it's sometimes it's
a case of looking at adjusting
expectations looking at alternative
locations these are things we've covered
in other podcasts and also the planning
you know the early you start saving and
planning the better equipped you'll be
to navigate the market considering
strategies like budgeting increasing
your income seeking professional advice
you know these are pretty standard
things that we always recommend there's
also some other interesting ideas that
are out there you know there are now
some options to get government grants
even if you're buying a home with a
friend or a non-direct family member as
part of these housing Grant packages
there are always different options
there's always ways that you can explore
to still move forward in terms of the
path of are buying your first home
absolutely yeah and and while it does
seem overwhelming there are some
opportunities I guess depending on where
you're willing to live and so today or
this week we're going to go through a
bit of a focus at Perth getting bit of
news but there still are suburbs where
there's a median house price of
$350,000 or less yeah absolutely Perth
is is kind of bit of the darling of the
property world at the moment the real
estate world you know it is growing
rapidly but it is still one of the most
affordable cities and I thought it'd be
interesting if we just take a look at
some spots where you can still find
homes that are under 350,000 there are a
few suburbs that are actually pretty
close to the city and in good locations
and you can get a mediate like a unit
and a small apartment for less than
350,000 so these are suburbs like
Osborne Park West Perth and Hamilton
Hill great options to take a look at if
you're considering living in Perth or
moving to Perth yeah and they're still
pretty well located like near the CBD
there's beaches in some of them and
pretty good amenities and this is where
we sort of spoke about last week you got
to look at that balance between investor
and occupi so investors have been
historically drawn to these areas
because of low prices and high yields so
keep an eye out for that and I guess
where you might find some value is own
occupi tend to be S looking for for
renovated units so you might be able to
get something of a little bit on the
cheap if don't might getting your hands
a little bit dirty yeah and I think one
of the other benefits there is if you
are buying a rental unit that is a bit
of a fixer upper and you put some work
into it you might actually be able to
get a semi decent return on your
investment there to sell to owner
occupiers as you upgrade to your next
place certainly an option to consider
there no it's a good one so we've talked
about Perth and it can offer some
affordable options but time you are as a
first time about often competing with
investors in these properties so there
have been some changes though and some
interesting news that that could tilt
the market back more in the favor of
unoccupied if you're buying your first
home so wa has just introduced a ban on
rent bidding so this is a practice that
it's pretty dirty like I guess if if you
want to explain it so how they do it and
hopefully it should make it a little bit
easier if you're trying to buy a home
and you're trying to compete against
investor yeah so rent Bing is I think
it's a deplorable practice personally uh
it's basically like having an auction
for the right to rent a house or an
apartment so rather than offering a
place for rent at a specific price they
will say that you can rent this house or
this apartment from let's say $500 and
then when you submit your application
you actually have to tell them how much
you'd be willing to pay to rent this
particular property so it's a way that
they artificially inflate the rents you
know you don't know if you're going to
get your rental application accepted if
you don't bump up say 50 or 100 above
the the lowest possible asking rent so
it's a pretty nasty practice from
landlords and property agents and I'm
glad that it's now illegal in Western
Australia yeah so landlords and agents
who violate this are liable for up to
$50,000 fine it's a good win for renters
and and even people in general it's
pretty pathetic if you have to sort of
rent bid on this so yeah hopefully I
guess the other other win is for first
home buyers cuz if that's out of the
window it should hopefully won't push up
the price of rental make it more
appealing for investors so first time
buyers might face less competition and
even make the market a bit more
predictable CU without that rent bidding
like it means that it could be more
stable rental market for prices and make
it easy for you to predict if you're I
guess still on the rental phase and
still saving help you plan your finances
it means you're not going to have a
complete BL there on some of the costs
absolutely yeah that's a wrap on this
week's episode of finance and 5 I mean
we've covered a fair bit of ground today
pretty quickly starting with the
exciting news of potential tax cuts that
could boost your boring power uh then we
dove into the mixed reaction to the $6.2
billion housing package I mean with some
of its potential benefits and some of
its shortcomings in terms of addressing
the immediate needs of Australians next
we had a look at the widening gap
between wages and property prices we had
a quick look at Perth and places where
you can buy a home for less than
$350,000 and then finally we just
wrapped up with the glimmer of good news
from Perth with the the ban on red
bidding which will level the playing
field and potentially reduce competition
and make makes a fairer rental market
the journey to home ownership can be
challenging so don't be discouraged so
stay positive if you're feeling
overwhelmed and you're not sure where to
start remember that you don't have to
this alone at Hunter Galloway we're a
mortgage broker we help home buyers all
across Australia we can help
understanding situation and try and find
loan options or even Solutions as far as
government grants and different things
that are out there that can help get
your foot on the ladder so if you're
ready to take a step on your home
ownership Journey hit us up we'd love to
help at Hunts gallery.com and until next
time we'll see you guys
[Music]
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