Budget 2017 Breakdown Part 1 - Housing AffordabilityThu, 25 May 2017
After reviewing the recent 2017 Federal Budget, there's a few areas of specific interest that we would like to share our insights on. Over the next few weeks, we'll dissect a number of these key subjects and welcome your comments on how this impacts you and the financial decisions you might make.
Despite record housing supply in recent years, Melbourne and Sydney have seen a significant and extended period of housing growth, making it nearly impossible for young singles and families to enter the housing market. As a result of the mining construction boom, WA housing prices also went through a period of significant growth. Although we have now had two years of negative growth in most sectors of WA property, the lag effect of high rents combined with the high cost of living here in the West continues to make it difficult for first home buyers and those looking to re-enter the market.
There is no silver bullet to solve this housing affordability crisis. The initiatives introduced in 2015, which involved investment-lending caps on banks and now the introduction of capping interest only lending at 30% will have an effect but this will take time.
However long it takes, ultimately it will result in owner occupied housing becoming more affordable as investment property lending becomes less appealing.
Changes for Investors
We've already seen a couple of minor changes to negative gearing policy. One in particular being travel costs related to inspecting an investment property will no longer be claimable as a tax deduction.Personally, I am of the opinion these changes are only the beginning of amendments to negative gearing, this one being palatable enough not to cause major dissent amongst investors.
A positive note, however, is strengthening of capital gains tax laws to ensure foreign investors pay a fair and equitable share of tax. Additionally, amendments to foreign investment laws will discourage ghost properties - those being foreign investors leaving their properties vacant for extended periods of time.
First Home Buyer Initiatives
We have seen the introduction of a new savings scheme for first home buyers through superannuation. In summary, this scheme will allow singles to access up to $30,000 and couples up to $60,000 funds that can be used to help with your deposit.
But, whilst this is a start, I'd also like to see the introduction of 40-year loan terms for first homebuyers below the age of 30. In reality, the lender won't have to hold onto this loan for 40 years as customers generally refinance between years 3 to 5, valuation permitting. With increase in salaries over time, these clients will be able to fit into a new 30 year loan term post age 30, but the lower repayments during these first few years will enable them to meet the servicing requirements for a higher loan, enabling them to be more competitive in the market.
Access to affordable and secure housing is critical for improving stability, employment, education and health outcomes for Australians.
The Government has introduced a number of initiatives to ensure Australians have more opportunities to own their own home or have access to affordable rental accommodation. And, they must continue to act decisively and responsibly to evolving conditions in the housing market. They have empowered ASIC and APRA to be more specific in their regulation of lending policies and to respond flexibly to financial and housing market developments that pose a risk to financial stability.
So what can you personally do?
Now, more than ever, is the time to seek advice from finance professionals who can guide you through this ever-changing environment.
At DO Financial, we pride ourselves on providing relevant advice suited to your personal circumstances. With many years of experience in both finance broking and financial planning, if you partner with us, you're in safe hands. Click here to contact us to see how we can help you.
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