Treasurer Scott Morrison’s 2016 federal budget has offered nothing to ease the younger generation’s path to home ownership. But with interest rates at an all time low, first home buyers’ fortunes may be about to change
Negative gearing is here to stay, at least while the Liberal Party holds the Treasury purse strings. It’s widely agreed that negative gearing contributes to the steadily rising real estate prices we’ve seen in recent years. So the fact that there’s nothing new on the horizon for negative gearing may be unhappy news for people saving for their first home – but good news if you’ve just invested in your first property.
2016 budget in brief
Superannuation reform made the headlines in Morrison’s budget, with many tax incentives being limited (particularly for high income earners and wealthier retirees). There was also a package of measures announced to support small business growth, plus a mixed bag of tax and benefit cuts. According to Morrison, the new budget has been designed to generate jobs and economic growth and that’s why he’s not prepared to make changes to negative gearing.
“Those earning less than $80,000 a year in taxable income make up two-thirds of those who use negative gearing,” said Morrison. “We do not consider that taxing these Australians more on their investments, including increasing their capital gains tax, and undermining the value of their own home and investment, is a plan for jobs and growth.”
A boost to middle income household budgets
The tax cuts announced on 3 May could offer a little relief for middle-income households struggling to save enough for a deposit. Individuals earning more than $87,000 per annum can expect at least an extra $315 in their pocket every year with the changes. Not a king’s ransom for a savings account, but the net gain could also be put towards repayments for first home financing.
A helping hand from the Reserve Bank
With negative gearing still in the picture and government contributions to deposit savings and grants for established properties out in the cold, who can first home buyers look to for help? Enter the Reserve Bank with its decision to cut the cash rate to an unprecedented low of 1.5%.
Assuming the banks are ready to pass on the change to their customers, this is great news for first home buyers who have their deposit and are ready to move. A lower interest rate reduces their repayments (or increases their purchasing power), though first time borrowers should be wary about taking on too much debt just because rates are low. But for those who are still putting money away, it’s not doing their savings any favours.
There have been reports of a slow-down in sales and property value growth in some parts of the country. Together with the fresh rate cut, these early signs of flagging demand could make now a prime time for first home buyers to get that first break into the market, even if it means buying a less expensive property and upgrading later as their equity builds.
Want to know more about owning your first home? Contact an Aussie Mortgage Broker for expert advice on financing for first home buyers.
This article has been updated to reflect the RBA’s August 2016 Rate announcement.
Are you planning to buy your first home soon? What did you think of the budget?