How Tax Cuts Will Boost Your Borrowing Power
The property market has long been a foundation of wealth-building for many individuals and families. With the implementation of significant tax cuts from July 2024, prospective homebuyers are set to experience enhanced borrowing power, making property ownership more accessible.
Increased Disposable Income
One of the most direct effects of the upcoming tax cuts will be an increase in disposable income. By reducing the amount of tax deducted from earnings, individuals will take home a larger portion of their salary. This additional income can be used to save for a larger deposit, pay down existing debts, or cover the various costs associated with buying property, such as stamp duty and legal fees.
Increased Borrowing Power
One scenario explored highlights that single Australians with no dependents earning $120,000 per year in FY24, who could borrow a maximum $615,135.18, will increase their borrowing capacity in FY25 by $27,061.93 on a mortgage based on a 6.28% interest rate to $642,197.44.
Enhanced Savings for Deposits
Saving for a deposit is often the most challenging part of buying a property. The tax cuts will make it easier for potential homebuyers to save by increasing the amount of money available each month. A larger deposit not only reduces the amount you need to borrow but can also make you eligible for better loan terms.
Lenders typically require a deposit of at least 20% of the property’s value to avoid paying Lender’s Mortgage Insurance (LMI). With increased savings capacity, more Australians will be able to meet this threshold, resulting in significant cost savings and potentially faster loan approval processes. This financial advantage can make a substantial difference in your ability to secure the property you desire.
Increased Market Activity and Property Values
As more Australians find themselves in a stronger financial position to purchase property, demand in the real estate market is likely to increase. This heightened demand can drive property values higher, benefiting existing homeowners and investors. For buyers, it’s essential to act strategically, taking advantage of the improved borrowing conditions while being mindful of potential market fluctuations.
Strategic Planning
To fully capitalize on the benefits of the tax cuts, it’s important to engage in strategic planning. Consider consulting with a mortgage broker to develop a tailored plan that aligns with your property purchase goals. Whether it’s optimizing your savings strategy, improving your credit score, or understanding the best mortgage options, professional guidance can help you navigate the complexities of the real estate market.
Conclusion
The tax cuts set to take effect in July 2024 are poised to significantly enhance borrowing power for property purchases. By increasing disposable income, improving creditworthiness, and boosting savings for deposits, these tax cuts will make it easier for Australians to achieve their homeownership dreams. As the real estate market responds to increased demand, prospective buyers should act strategically and plan carefully to make the most of these financial opportunities. With thoughtful preparation and informed decision-making, the path to property ownership will be more accessible and rewarding than ever.