Show notes – How the Federal Budget will impact the Australian property market – who it targets and benefits and why! (Ep.147)

 
 

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In this week’s episode, Dave, Cate and Pete take you through:

How does this budget compare?

  • Interesting budget – no huge surprises. After the amount of money spent getting us through the pandemic, it was an enormous ledger, I didn’t’ expect to see huge dollars being thrown about.  
  • Housing affordability and rental crisis didn’t crack a mention.  
  • 4 years ago, they were talking about returning us to surplus, not a mention about that now. Accepted there was a huge deficit. The shortcoming was also not standing up to some of the things they didn’t do, vaccine mess. There were not many headline things that will rattle the property world. Tax reform, nothing nearly as substantial as past budget 
  • Reasonable budget heading into an election. They will normally splash cash around prior to an election. They didn’t do this which is good given the inflationary pressures. A few areas focused on, Home Guarantee more than doubled.
  • Made up of  
    • First (or New) home guarantee – 35,000 places per year (up from $10,000) 
    • Family home guarantee – 5,000 places per year (up from $2,500) 
    • Regional home guarantee – 10,000 places per year 
    • = 50,000 places total per year 

First (or New) Home Guarantee up to 35,000 guarantees each year, up from the current 10,000, from 1 July 2022

  • Also known as “New Home Guarantee” 
  • Details of scheme
    • Build or purchase a newly built home with a deposit as low as 5% 
    • Government will guarantee up to 15% 
    • No LMI paid as lending at 80% 
    • Owner occupiers, not investment 
    • Loans under the New Home Guarantee require scheduled repayments of the principal and interest of the loan for the full period of the agreement, which will need to be for a term of 30 years or less, (with limited exceptions for interest only loans, which mainly relate to construction lending). 
  • Eligible properties 
    • newly-constructed dwellings 
    • off-the-plan dwellings 
    • house and land packages 
    • land and a separate contract to build a new home
  • Eligible people 
    • Australian citizens who are at least 18 years of age. Permanent residents are not eligible
    • Income – previous financial year
    • Single applicants with a taxable income of up to $125,000 per annum
    • couples with a taxable income of up to $200,000 per annum
    • Applicants must be first home buyers who have not previously owned, or had an interest in, a property in Australia, either separately or jointly with someone else (includes residential strata and company title properties).
  • Borrowers can use the guarantee in conjunction with other government programs like the First Home Super Saver Scheme, HomeBuilder grant or state and territory First Home Owner Grants and stamp duty concessions. 

Family Home Guarantee – 5,000 guarantees each year from 1 July 2022 to 30 June 2025 

  • When the scheme was announced last year, the scheme was to give 10,000 places over four financial years (to June 2025) to single parents = 2,500 places per year. 
  • Now it has been doubled to 5,000 places per year until 30 June 2025 
  • Details of the scheme 
    • Single parents with dependents 
    • Purchase a home (cannot be investment) 
    • New or existing 
    • Deposit minimum of 2% 
    • Government will guarantee maximum 18% 
    • No LMI paid as lending at 80% 
  • Eligibility 
    • Be a single parent with at least one dependent.  
      • You will need to demonstrate that as a single parent you are legally responsible for the day-to-day care, welfare and development of your child and that they are in your care.  
      • Depending on your situation and terms of any shared custody arrangement, both single mother and father of a child may be able to separately access the Family Home Guarantee as individuals. 
    • Australian citizen, at least 18 years of age 
    • With an annual taxable income of $125,000 or less for the previous financial year (Child support payments are not included as income for the purpose of the income cap) 
      • You need to provide NOA from previous financial year 
    • As a single parent, you must be the sole applicant listed on the loan and certificate of title. 
    • You must live in the property you intend to purchase. 
    • Although this does not need to be your first home to be eligible for this scheme, you will not be eligible if you do currently own a home, including commercial property, investment property, owning land or a company title interest in land in Australia. 
  • Why target this co-hort?
    • It’s very hard to have cash on hand for a deposit if you are going through a divorce or separation.  
    • We would have loved to see more of this.  
    • One of the reasons why property prices have grown so much is because we have two members of the household working full time – increases borrowing capacity.  
    • If you’re a single parent, it is proportionately harder (for younger people too purchasing their first property) because they are competing with dual incomes.  
    • An interesting distinction for this scheme is that it can be used to purchase existing properties – under-utilised properties closer to the city.  
    • To purchase a house, you need to purchase way out, where the city meets the country. Thereby you are further entrenching social disadvantage. If you allow single parents to move into existing houses, they’ll be moving into areas closer to the city.
    • Only need a deposit of 2% – the other guarantees are 5%. 

Regional Home Guarantee – 10,000 guarantees each year from 1 October 2022 to 30 June 2025 

The Regional Home Guarantee is part of an expansion of the above New Home Guarantee 

  • Details of the scheme 
    • Rural or regional area
    • Build or purchase a newly built home with a deposit as low as 5% 
    • Government will guarantee up to 15% 
    • No LMI paid as lending at 80% 
  • Eligibility 
    • Either first home buyer OR have not owned property within the last 5 years 
    • Australian citizens or permanent residents – encouraging migrants to settle in rural areas by opening the scheme to permanent residents, unlike the other schemes which are restricted to Australian citizens.  
  • It also allows permanent residents to take advantage of this scheme (the others do not, they are only open to Australian citizens), reading between the lines it seems the government is trying to encourage migrants to move to the regions.  
  • Don’t think the regions needed this, there is such stock shortages providing pressure on prices. 
  • Would could be useful, is further narrowing to the regions that have been struggling. Areas that have lost their local football teams, netball teams, schools closed down, churches.  
  • Pete gives an example of a regional council in SA which advertises the shortages that they have to encourage newcomers. We don’t have any plumbers in this area, if a plumber came there would be pelnty of work for them. If we can get more people to live out there, that would be good.  
  • How can we underpin continued migration to regions? In the years prior to covid, migration to regions had taken a hit. Particularly the satelite towns around bigger regional centres with less than 5,000 population, they are the ones that struggle and miss these things, it could be more targeted to these towns.  

First Home Super Saver Scheme

  • From 1 July 2022, the maximum amount of voluntary contributions that can be released under the FHSSS will be increased from $30,000 to $50,000 per person enabling first home owners to achieve their dreams of home ownership sooner. 
  • Under the FHSSS, first home buyers, who have made voluntary super contributions of up to $15,000 per financial year into their super 
  • Taxed at 15% in super rather than your normal tax rate.  
  • You will be better of if you put your savings into Super – you can only pull it out to buy a property. You can’t then go back and tap into the money once you’ve put it in there. Makes sense to put extra savings, $15,000 a year to go to the first home, than you otherwise would have. 
  • can withdraw these amounts (plus associated earnings/less tax) from their super fund to help with a deposit on their first home. 
  • Combine with your own savings 
  • If you’re a first home buyer, you may be eligible to withdraw voluntary super contributions you’ve made (plus earnings) to put towards a home deposit. 
  • The First Home Super Saver Scheme (FHSSS) helps Australians boost their savings for a first home by allowing them to build a deposit inside superannuation, giving them a tax cut.  
  • For most people, the FHSSS can boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account. 

Forecast for Interest Rates

  • The Government has predicted that inflation will come back down and be under control within 12 months. I don’t know if they can be all that certain. On this basis, we would expect rates to rise within the next 12 months, but not much beyond that. The Government’s crystal ball is no better than ours. They had a subtle mention there about inflationary pressure not being as great as they initially thought – supply chains starting to resolve themselves. Expecting significant rate rises is not on my horizon, we would be really surprised if there are consecutive rate rises. 
  • For the people who are concerned, when you got your mortgage in the last year, banks do use a benchmark assessment rate, so there is some fat in there. You could tighten your discretionary spending. 
  • Fixed rates are going up, pricing in the money markets is increasing for long-term money. It doesn’t mean that the variable will actually go that high.  

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