May 18, 2024
Tax Cuts Expected to Ease Housing Affordability Woes in Federal Budget 2024
The Australian housing market, grappling with its worst affordability crisis in three decades, received a glimmer of hope with the announcement of tax cuts in the Federal Budget 2024. These tax cuts are expected to boost household income and, consequently, borrowing capacity, potentially making homeownership more attainable, particularly for first-time buyers.
Tax Cuts for Increased Take-Home Pay:
The good news for taxpayers is that everyone will see a tax cut starting July 1st. The exact amount varies based on income level, but the cuts are significant. For instance, someone earning the average wage of roughly $73,000 can expect a tax cut of $1,504 annually. This translates to a welcome boost in take-home pay, putting thousands of dollars back into the pockets of Australians.
Impact on Borrowing Power:
The increased take-home pay due to tax cuts directly translates to an increase in borrowing power for homebuyers. Mortgage Choice broker James Algar estimates that a buyer with a $100,000 income could potentially borrow an additional $25,000, while a buyer earning $150,000 could see their borrowing capacity rise by a substantial $37,000. This increase can be the difference between securing that dream home or being outbid at auction.
First-Time Buyers Stand to Benefit Most:
The impact of these tax cuts is particularly welcome for first-time buyers who are most affected by rising interest rates and limited borrowing capacities. While all owner-occupiers will benefit, the impact is expected to be slightly more pronounced for them compared to investors. However, Mr. Algar cautions against overstretching financially and advises buyers to stay within comfortable borrowing limits.
A Shot in the Arm for the Affordable Housing Market:
PropTrack senior economist Paul Ryan believes these tax cuts will act as a tailwind for the property market, particularly in the more affordable segment. With many potential buyers currently constrained by borrowing limitations, especially first-home buyers, the increased capacity allows them to be more competitive in the market.
Timeline and Considerations for Buyers:
It’s important to note that the impact of tax cuts on lenders’ borrowing calculators might not be immediate. Banks often take a month or so to update their systems after tax rate adjustments. For buyers eager to see the impact on their borrowing potential sooner, Mr. Algar suggests consulting a mortgage broker. Brokers can manually adjust their calculators to reflect the new tax rates and provide a more accurate idea of the increased borrowing capacity.
Beyond Tax Cuts: A Look at the Bigger Picture
While tax cuts are a positive step towards improving housing affordability, it’s crucial to consider the broader economic context. Rising interest rates and overall inflation continue to put pressure on household budgets. Additionally, property prices themselves are unlikely to decrease significantly due to the tax cuts.
Conclusion: A Step in the Right Direction
The tax cuts announced in the Federal Budget 2024 offer a much-needed boost to household income and borrowing power for homebuyers. This is particularly beneficial for first-time buyers struggling in the current market. However, it’s important to remember that tax cuts are just one piece of the puzzle. Addressing inflation and ensuring responsible lending practices are also crucial for long-term housing affordability in Australia.
Published on: 18th May, 2024
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