Tax Cuts Will BOOST Borrowing Power by $$$

Summary

This 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

00:00

🏠 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.

05:03

📈 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.

10:04

💼 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.

Keywords

💡Federal Budget

The Federal Budget refers to the government's annual financial plan, detailing expected revenue and expenditures. In the video, it highlights significant changes affecting first home buyers, such as tax cuts and housing packages aimed at addressing the affordability crisis.

💡Tax Cuts

Tax cuts refer to reductions in the amount of taxes that individuals or businesses must pay. In this context, the video discusses how these cuts could increase borrowing power for aspiring homeowners, making it easier for them to afford a home.

💡Borrowing Capacity

Borrowing capacity is the maximum amount of money a person can borrow, typically for a mortgage. The video explains how recent tax cuts could enhance this capacity, allowing potential home buyers to qualify for larger loans.

💡Housing Affordability Crisis

The housing affordability crisis refers to the growing difficulty for individuals, especially first-time buyers, to afford homes. The video discusses various measures, including government packages, intended to mitigate this crisis by increasing housing supply and providing financial relief.

💡Student Debt Relief

Student debt relief involves measures to reduce the financial burden of student loans. The video mentions government initiatives to lower interest rates on student loans, helping borrowers pay off their debts quicker and potentially increasing their future borrowing capacity for mortgages.

💡Help to Buy Scheme

The Help to Buy Scheme is a government initiative designed to assist first-time home buyers by contributing to their home's purchase price. The video outlines how this scheme, if passed through the Senate, could significantly aid new buyers by reducing the financial barriers to homeownership.

💡Infrastructure Boost

Infrastructure boost refers to government investment in essential public works, such as roads and housing infrastructure. The video highlights this as part of the budget's long-term strategy to unlock new housing supply, though it may not provide immediate relief.

💡Rent Bidding

Rent bidding is a practice where prospective tenants bid to secure a rental property, often driving up rental prices. The video mentions Western Australia's recent ban on this practice, which aims to create a fairer rental market and reduce competition from investors.

💡Wage-Property Price Gap

The wage-property price gap refers to the disparity between the growth in wages and the rise in property prices. The video discusses this widening gap, which exacerbates the housing affordability issue, making it harder for average earners to buy homes.

💡Affordable Suburbs

Affordable suburbs are areas where property prices are relatively lower, making them more accessible to first-time buyers. The video examines several such suburbs in Perth, providing examples of locations where median house prices remain under $350,000.

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]