The times they are a-changin’
What the 2017-18 Federal Budget and recent regulatory intervention means for
home-owners and home-buyers.
Last week’s Federal Budget release comes hot on the heels of a number of unprecedented changes to the Australian mortgage market.
These changes have been implemented by our banks and non-bank lenders in response to directives given to them by the Australian Prudential Regulation Authority (APRA), the Australian Securities & Investments Commission (ASIC) and the Federal Government itself.
The changes themselves have one single goal – to cool-down our residential housing market in order to improve housing affordability.
The problem for home-owners and in particular home-buyers is that there is just so much change occurring in rapid succession that unless you’re a professional mortgage broker it’s almost impossible to keep track.
With that in mind our Managing Director, Michael Russell, has summarised below the key elements of the Federal Budget as it relates to housing and the recent policy changes to home and investment lending.
Federal Budget 2017-18
First Home Buyers (FHB’s)
From 1st July this year, FHB’s will be able to save their deposit quicker by salary sacrificing into their superannuation account.
Each FHB will be able to save up to $30,000 in excess of their compulsory superannuation contributions and from 1st July 2018 withdraw their savings plus any income earned from their savings to apply towards a home deposit.
While the tax savings over 2 years might be as much as $6,000 depending on your marginal tax rate, this is hardly going to get FHB’s excited when considering the median dwelling price today of $625,800 will increase by $148,029 to $773,829 over the same 2 year period.
Our view is that it is a policy already destined for the same demise as the failed First Home Savers Account and will do nothing at all to help struggling FHB’s get into the housing market. It is a disappointing outcome as the Federal Government had contemplated doing a lot more to help FHB’s.
Fortunately – state and territory governments have been very active in recent times offering a raft of increased grants and stamp duty savings to help their FHB’s get into the market sooner than they otherwise would be able.
Fortunately negative gearing was left largely untouched – suffice that those landlords negatively geared can no longer claim as a tax deduction travel expenses relating to their investment property.
On the flip side, investors who purchase eligible ‘affordable housing’ will be entitled to a 60% Capital Gains Tax exemption compared to the normal 50%.
Overall, property investors were left alone.
The good news for downsizers is that from 1st July 2018, those aged 65 and over can sell their home and make a non-concessional contribution of up to $300,000 each into their superannuation fund.
To qualify, the home must have been lived in for at least 10 years and anyone contemplating taking advantage of this concession is strongly encouraged to seek financial advice before making the decision to sell.
This policy change is designed to increase the supply of affordable housing and at first glance does appear to be a win-win for downsizers and property buyers.
New Government Bank Tax
Now this one is something to behold.
The Federal Government has imposed a new tax on our 5 biggest banks – the big 4 plus Macquarie – to raise around $6.2 billion in the next 4 years.
The only problem is that the Banks have responded by saying that they will not absorb the tax but will be forced to pass it on – in part in the form of higher mortgage rates.
That’s right – the Federal Government has outsourced some of its tax collections to our biggest banks.
The caution for current and prospective mortgage holders is that variable rate mortgages are likely to be a target.
Recent policy changes to home lending
Interest Only Repayments
In the last few days, the major banks have begun a withdrawal of offering interest only home and investment loans.
With the regulators frowning upon interest only repayments, banks are electing to no longer offer them when the loan to valuation ratios exceed 90% or in some cases 80%.
This is bad news for property investors and in particular the self-employed who as a consequence of their month to month income volatility have generally preferred interest only with the option of making principal repayments in the good times.
First Home Buyers (FHB’s)
As if not challenging enough for young FHB’s, loan to valuation ratios have been reduced by lenders in response to APRA’s concerns around mortgage stress.
This means that borrowers are having to save larger deposits today than anyone in history.
In response to APRA’s directives to slow the growth of investment lending, loan to valuation ratios have been reduced across almost every bank and non-bank lender. Additionally, interest rates for investment lending – existing and new – have increased and are continuing to be under upward pressure.
With so much going on, there’s never been a better time than now to have a professional mortgage broker at your side!