The Scenic Rim property market received a much needed boost this month, with tax cuts boosting typical buyers’ borrowing capacities by tens of thousands of dollars.
Most taxpayers saw their take-home pay rise as a result of the stage three tax cuts coming into effect, with the increase to incomes raising the maximum amount of money that buyers can borrow.
First-home buyers will also benefit from an extension of support schemes, while property investors’ tax returns will be heavily scrutinised, and all households will get energy bill relief starting July 1.
Tax cuts boost borrowing capacities
One of the major changes in the new financial year is an adjustment to tax rates that will reduce the amount of tax that all income earners pay.
The reduction in tax will depend on income levels. Tax rates will be reduced for lower income brackets, while the income threshold for higher tax rates has been increased, meaning people would need to earn more money before being taxed at a higher rate.
An individual earning the average full-time annual salary of $98,098 will now save $2131 per year, according to the federal government’s tax cut calculator.
Someone earning $50,000 per year will save $929, while a high income earner on $200,000 per year will save $4529.
While everyone will benefit from more money in their bank account each week, homebuyers will get the added advantage of an increase to their borrowing power as a result of higher after-tax income.
Income is one of the largest factors that influences borrowing capacity, as a higher income allows a borrower to afford higher repayments.
Mortgage Choice broker James Algar said a buyer with a $100,000 income could see their borrowing capacity increase by about $25,000 as a result of the tax cuts, while someone earning $150,000 could borrow about $37,000 more.
Mr Algar said couples would benefit even more as a result of shared expenses.
“A household with two adults doesn’t have twice the living expenses,” he said. “You’ve got one set of bills, council rates and utility costs and not double the amount of groceries.’
“It would have at least double the impact, assuming they’re earning similar incomes,”
Borrowing capacities have fallen by about 30% since interest rates started rising in May 2022.
While Mr Algar cautioned against borrowing the absolute maximum, he said tax cuts would have a meaningful impact for many borrowers, especially first-home buyers.
First-home guarantee extension
The First Home Guarantee which allows eligible first-home buyers to purchase a home with a deposit as low as 5%, will continue in the 2024-25 financial year, although the number of places is yet to be determined and will be announced on July 1.
Under the scheme, up to 15% of the value of the property is guaranteed by Housing Australia, enabling buyers to purchase with a smaller deposit without paying lenders mortgage insurance. 35,000 places were available in the 2023-24 financial year.
To be eligible, first-home buyers need to meet certain criteria, including earning $125,000 or less for individuals or $200,000 or less for joint applicants and having a deposit between 5% and 20% saved.
Property price caps vary between cities and regions, and buyers need to apply through a participating lender.
NOTE: Story as published by realestate.com
