Wise Monkey Property

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Archives for First Home Buyers

The Federal Budget 2017

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The Federal Budget for 2017 was released last week and here is the Wise Monkey Property take on it! A large focus of this budget is the governments housing affordability package. The aim of the package is to combat the increasing housing prices and stimulate investment from both first home buyers and investors. The key areas that you need to know about for your investing journey are first home buyer incentives, infrastructure funding and Capital Gains Tax incentives.

First Home Buyers

First home buyers have been dealt an excellent hand with the First Home Super Saving Scheme. From the 1st of July 2017 you will be able to make contributions of up to $15,000 per year for two years into your superannuation. Which you can then draw on from the 1st of July 2018. With a tax rate of only 15% on contributions and tax at withdrawal of less than 30% offset, it can increase your savings by up to 30% over two years. With options to salary sacrifice and make personal contributions for those who are self-employed, the scheme is available to all prospective first home buyers.

National Housing Infrastructure Facility

This area of the budget will have huge positive impacts on investors. The framework of this scheme will see a contribution of $1 billion over 5 years into local infrastructure such as transport, power, water and site remediation. The establishment and improvement of this infrastructure is going to create new growth hot spots in existing markets. Local governments will have their plans assessed by the government from July 2018 to commence works. Getting into markets as early as possible, before the upgrade will be the key in taking full advantage of the benefits this scheme will provide.

Capital Gains Tax Incentives

Capital Gains Tax (CGT) has had concessions put in place to promote investors to provide affordable housing in markets. The incentives are a 10% CGT on properties deemed ‘affordable housing’. To qualify, houses need to be rented out at below market value rent for a period of three years from July 2018 to qualify for a 60% on CGT when sold. If you wish to rent at any stage above market value, your discount is calculated pro-rata for periods when your investment qualified. A valuable long term strategy that could make you significant returns upon sale. Preparing your investment portfolio now to take full advantage of this incentive.

Negative Gearing

Investors can breath a sigh of relief with the government making no changes to the negative gearing policies. This means that when combined with the CGT discount, there is a lot of opportunity to take full advantage of the new incentives. The only drawback is the removal of the ability to claim travel to inspect your investments.

Setting yourself up to invest

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Many people assume that they have not saved enough, or do not earn enough to consider buying a property. If you have ever thought that investing in property is a goal you wanted to achieve but seems out of reach, we have a simple set of steps that will prepare you for your entry into the market.

Credit ratings

The three elements you need to research before your property journey begins are knowing your credit rating, borrowing capacity and the value of equity or savings you currently have. Credit ratings are used by lenders to determine the risk involved in granting you a loan. Credit ratings are usually affected by late or failed repayments on bills and credit cards. If you have a good credit score, you will be in a good position to secure a loan.

Equity and assets

Before looking into loan options, you will need to assess the value of any assets you have, savings and income. Borrowing is based on risk, the lower the risk, the greater your borrowing capacity. A reliable, steady income will assist in you gaining approval for a loan as it reduces the risk of you potentially defaulting on repayments. Your savings and saving history is a good risk reduction metric for lenders as well and works in a similar way. The value of any assets or equity you have will increase your borrowing capacity because it can act as an ‘insurance’ against you defaulting on your loan.

Loan calculators

There are a number of banks and lenders who provide free mortgage calculators. These calculators are an excellent tool to help you understand what your loan repayments are most likely going to look like. You are even able to see what impact interest rates, length of the loan and different loan options will have. Once you know what size loan you will require and are comfortable with the likely repayments, the next step is reaching out to a lender.

Lending options

Securing a loan pre-approval through a lender will answer any final questions on how much you can borrow and any conditions associated with the loan (deposit requirements, interest options etc). There are a number of options available to you such as banks and building societies. But we recommend you use a mortgage broker to give you a better idea of all the mortgage options available in the market. Once you have attained pre-approval, your next step is making an offer on the investment you have been dreaming of.

Housing prices, first home owners and housing bubbles

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Issues for First Home Buyers

It is becoming increasingly difficult for people to save enough for a deposit with the increases in average house prices around the country. Many are putting off having children and are entering the market much later in life than we have previously seen. The average age of first home buyers in Australia is now between 31 and 33 and slowly rising. Average house prices for first home buyers is also on the rise and is now in excess of $400,000 as a national average, and is significantly higher in the capital cities!

For first hime buyers this means that it is getting harder and harder to enter the market with a viable finance option. Increasing housing prices leads to increased, and often unreachable deposits to avoid mortgage insurance. Combined with a decrease in loan-to-value ratios (LVR) by some banks to a maximum of 90%, the future looks bleak.

Investment Bubbles Explained

The national treasurer recently stated that our housing prices are ‘real’. But what does this mean? The term ‘investor credit bubble’ has been used in the media as a potential cause of increasing housing prices. So what is it? A ‘bubble’ is a significant increase in the price of an asset due to external factors not related to the actual value of the asset. In this example, low interest rates, high loan-to-value ratios (LVR) and foreign investment interest are the possible cause of the ‘bubble’. The fact is there is no bubble, there is simply a mismatch between supply and demand in the property market which is increasing the overall value of property in Australia, regardless of external economic factors. This means that the sooner you are able to enter the market the better your returns are likely to be in the future.

The Government’s Response to Unaffordable Housing 

These issues have sparked a number of responses from the government to address the issue of unaffordable housing. The increase in the first home owners grant in July 2016 to $20,000 and Stamp Duty exemptions and reductions for first home buyers are only the first steps the government has taken to make the housing market more attractive to both first home buyers and investors. With the future government assistance being an unknown, the unprecedented assistance packages provided in the form of Stamp Duty exemptions and First Home Owners Grants should be capitalised on before they are reduced or abolished in the July federal budget release.

 

 

 

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MAIL: Po box 888 Samford, Queensland, 4520

PHONE: 0410 691 311

EMAIL: matt@wisemonkeywealth.com.au

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