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The 2024 Federal Budget's newly announced tax cuts are poised to increase home buyers' borrowing capacities, potentially easing the strain of purchasing a home amid the current housing affordability crisis.
Starting July 1, all taxpayers will receive a tax cut, with the amount depending on their income. For example, someone earning the average wage of around $73,000 will see a $1,504 tax cut. Those with incomes of $100,000 and $150,000 will save $2,179 and $3,729, respectively.
These tax cuts will enhance the financial capabilities of prospective homebuyers, giving them more leverage when entering the property market. Housing affordability has reached its lowest point in three decades, making these adjustments particularly timely.
Mortgage Choice broker James Algar (pictured above) said that these tax cuts could also notably increase borrowing power. For instance, a homebuyer earning $100,000 could see their borrowing capacity rise by about $25,000, while those earning $150,000 could borrow approximately $37,000 more. These estimates are based on an owner-occupier with a single income, an interest rate of 6.19%, a loan-to-value ratio of 80% or less, and a 30-year loan term.
“If you’re down to your next bid at auction, that could easily be the difference between tapping out and just snagging in,” Algar said. He also mentioned that dual-income households might experience an even greater impact, potentially doubling the benefits of the tax cuts.
Since interest rates started rising in May 2022, borrowing capacities have dropped by about 30%. First-time homebuyers purchasing affordable properties are expected to benefit the most from the increased borrowing capacities. Algar advised buyers to avoid stretching their borrowing limits to the maximum, as owner-occupiers will likely see more marginal benefits than investors.
The impact of the tax cuts on lenders’ calculators may not be evident right away, Algar said, as banks typically take about a month to update their systems following tax rate adjustments.
“If you want to see the difference it will make a bit quicker, you’re probably best talking to a broker because we can tweak the calculators a little and manually adjust to see those changes,” he said.
PropTrack senior economist Paul Ryan claimed that the tax cuts would provide some support to the property market, especially for more affordable homes.
“There’s a lot of people who are really constrained by borrowing capacities at the moment. First home buyers in particular are doing it tough with higher interest rates and are the ones most constrained with borrowing capacities. I think it will give a bit of a boost to the market, particularly at the lower end of the market,” Ryan said.
