Next financial year, a typical homebuyer’s borrowing capacity will increase by tens of thousands of dollars due to tax cuts included in a federal budget aimed at lowering the cost of living, realestate.com.au reported.
The 2024 Federal Budget introduced significant tax cuts that will increase typical taxpayers' take-home pay by thousands of dollars, enabling them to afford more expensive properties in a market where housing affordability is at its lowest in 30 years.
From July 1, every taxpayer will receive a tax cut, with amounts varying based on income levels. For example, a person earning $73,000 annually will receive a $1,504 tax cut. Those earning $45,000 are estimated to receive an $804 annual tax cut, while those making $100,000 and $150,000 will save $2,179 and $3,729 per year, respectively.
The effect of higher incomes will significantly increase a typical home buyer’s borrowing capacity.
For example, a home buyer earning $100,000 could see their ability to borrow increase by about $25,000, while a buyer with a $150,000 income could borrow around $37,000 more.
“If you’re down to your next bid at auction, that could easily be the difference between tapping out and just snagging in,” Mortgage Choice broker James Algar told realestate.com.au.
Algar also noted that the impact on dual-income households could be even more significant, potentially doubling their increased borrowing capacity.
Borrowing capacities have decreased by about 30% since interest rates began to rise in May 2022.
First-home buyers targeting more affordable properties would benefit the most from increased borrowing capacities, although Algar advised against maxing out these limits.
“It will help investors, but I think it will help owner occupiers marginally more,” he said.
Paul Ryan (pictured above), PropTrack senior economist, commented on the broader effects of the tax cuts on the property market, noting a "slight tailwind" particularly benefiting more affordable homes and first-home buyers.
“I think it will give a bit of a boost to the market, particularly at the lower end of the market,” Ryan said, noting as well that high interest rates and constrained borrowing capacities continue to challenge this demographic.
While the budget also addresses student debt, with more than three million people seeing reductions in their student loan balances, this adjustment is unlikely to significantly affect borrowing capacities.
“The likelihood is a lower student debt will make no meaningful difference to the loan capacity at all,” Algar said.
However, the long-term benefit of being able to pay off student loans sooner could improve financial freedom for many, realestate.com.au reported.
To read the original realestate.com.au article, click here.
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