Home Grown Winter 2017
Whether you’re a first home buyer or looking to purchase your next property, the 2017-18 Federal Budget handed down by Treasurer Scott Morrison on 9 May should, overall, give you reason to smile.
The First Home Super Saver Scheme
From 1 July 2017, saving for a home deposit should be easier with the proposed introduction of a scheme that allows first home buyers to salary sacrifice into a super fund. This will deliver a tax saving which can go towards your deposit savings, with funds in the scheme taxed at just 15% instead of the usual marginal tax rates (which are currently as high as 45%).
The benefit comes from the ability to access these additional super contributions before retirement to put towards your home deposit. You’ll be able to put up to $15,000 per year into the scheme, capped at $30,000 overall. If you’re buying with a partner, you’re both entitled to that amount, bringing your total contributions to $60,000.
This could serve as a beneficial strategy for first home buyers looking to save up for their house deposit faster. By depositing a portion of your yearly income into the scheme for two-three years, you could avoid paying extra tax and put that money towards your new home instead.
Measures to cool the property market
There are several measures which have the potential to cool the property market a little and give first home buyers a better chance of securing a home:
- An annual foreign investment levy will be charged against future foreign investors who leave their property vacant for more than six months each year. There will also be higher investment property application fees.
- Foreign property owners will now have to pay capital gains tax when they sell their main residence.
- Foreign ownership of new developments will be capped at 50%.
- People aged 65 years or older who downsize can now put $300,000 from the sale of their home into their super fund
Paying more tax – but only a little more
Most of us will pay more tax from 1 July 2019 if the proposed changes go ahead. The Medicare levy, currently at two per cent, is set to increase by half a per cent to help fund the $22 billion National Disability Insurance Scheme.
More high school funding, but more university fees
The education industry can expect a mixed bag of changes. While there will be more Commonwealth funding per student for most high schools, around a dozen schools will miss out and 300 more will receive a lower amount. This is a part of the government’s effort to standardise school funding. They intend to give schools an additional $23.5 billion in the next 10 years.
University course fees will increase by 1.8 per cent by next year. This amount is expected to further increase to 7.5 per cent by 2022. From July next year, the minimum income level at which you must start repaying your HECS debt will also drop from over $55,000 to $42,000.
What about small business owners?
Small business owners can continue to enjoy the cash flow benefits of the instant tax offsets, which have been extended for another year. If your business is turning over less than $10 million each year, then you can write off $20,000 worth of expenditure.
This amount may drop back down to $1,000 as of July 1 2018, but the instant tax offsets may be extended for another year.
Small business owners should also be aware that you’ll be facing an annual fee of up to $1,800 for any employees on a temporary work visa. You’ll also be required to pay a once-off levy for any workers on a permanent skilled visa.
Other proposals include ending the Medicare rebate freeze and improving incentives for GPs to bulk bill, meaning your out-of-pocket medical expenses may be reduced.
First home buyers should monitor the housing market for opportunities following marketcooling proposals. If you’re still saving, check out how the First Home Super Saver Scheme might get you into a property sooner using this tool: www.budget.gov.au/estimator
When you’re making decisions about buying and selling, remember at this stage the Federal Budget outlines proposed changes only.
HOW TO TURN YOUR TAX RETURN INTO SAVINGS
With tax return season just around the corner, it’s time to start thinking about how you can make the most of any extra cash.
If you’re expecting a nice refund after lodging your tax return, it can be tempting to dream of a sun-drenched holiday or shopping spree. However, it’s worth considering some other uses for your tax return that can reward you in the longer term.
A tax refund snapshot
Nearly one in three people use the refund to pay off bills, while one in five add it to their savings. Just nine per cent of people put the money towards their home loan.
A smart investment
While it’s not something that always comes to mind, putting your refund towards your home loan can end up saving you further down the track if you consider the figures.
Say you’re two years into a 30-year loan, after borrowing $350,000 at an interest rate of 4.9%. Over the term of that loan, you’ll pay back the borrowed amount plus another $318,716. By putting the average tax refund of $2,112 towards that loan, you could save around $6,134 in interest payments and shave four months off your loan’s lifespan.
Keep in mind some home loans don’t permit extra repayments and fees may apply.
For that rainy day
Of course, it’s great to have money set aside for a rainy day. If you have an offset account or redraw facility you can still benefit from interest savings while having access to the funds.
While it’s nice to treat yourself at the end of the financial year, putting just some of your refund towards your home loan can mean long-term savings.
READY TO BUY PROPERTY OFF THE PLAN READ THIS FIRST
Buying property off the plan is exciting as it means you get to own a brand-new home, but make sure you know what’s involved. Start by asking these five questions:
1. Do you know the risks?
When buying an apartment, unit or house off the plan, you’re purchasing a promise. You can’t step into the future and inspect the property you’re buying. Thoroughly investigate what the finished product will look like and explore the risks with your broker.
2. Does your contract limit the risks?
The contract should be comprehensive, covering everything from price, completion date and your legal rights, to conditions such as:
- whether you can on-sell the property before it’s completed
- what happens to your deposit if the building doesn’t go ahead
- what happens if completion is delayed.
It’s important to obtain legal advice before entering into any contract.
3. Who is the builder or developer?
Before you’re committed to buy, it’s important to know your builder is reputable. Visit the building company’s website and check out past projects or visit any display homes. Use online forums to find company reviews. You should also consider how much input you will have during the construction phase.
Can you make site visits during construction? Can you make changes to the finishes and select the appliances? Can the builder make changes without telling you?
4. Are you eligible for government grants and concessions?
One of the best things about buying off the plan is owning a shiny new place. Another perk is the potential of government grants and concessions for off-the-plan buyers. Check eligibility with your state or territory duties office.
5. Are you financially ready to buy off the plan?
You’ll usually need a deposit to secure the property with the balance payable upon settlement. Because of the longer waiting period between exchange of contracts and settlement, those requiring loan preapproval should check that approval can be obtained earlier while the project is being completed.
While there are some risks when buying off the plan, being prepared, asking the right questions and talking to your mortgage broker about finances can help you to enjoy the benefits of a brand-new home.
HOW REDRAW WORKS AND WHY IT’S A HANDY LOAN FEATURE
It’s one of the less glamorous home loan features, but the redraw facility deserves a second look. Here’s why:
The redraw facility explained A redraw facility lets you make additional repayments to reduce your variable rate home loan balance and save on interest. If you pay more than your minimum scheduled repayments, then you’ll have money available to redraw from your home loan.
The redraw facility is a common feature of many home loans. It’s not available, though, on construction loans and only some lenders allow it for fixed rate loans.
You can redraw funds if, and when, they are needed, or you can keep the funds in your home loan to pay off your principal faster. The amount available for redraw is the difference between what you have paid and how much you were required to pay, less one month’s scheduled repayment.
You can check your loan account online to view your available redraw amount at any time. Alternatively, you can call your home loan customer care team and ask them to check for you.
In May, the biggest slowdown was observed in Hobart, with month-on-month residential house and unit prices dropping by an overall 4.84%2. NAB expects the market to cool noticeably in 2017, but notes prices could be more resilient than some commentators have suggested, with fewer properties entering the market and underlying demand remaining solid in many areas. However, authorities have announced prudential measures that are seeing credit conditions tighten, which combined with a record pipeline of residential construction in some cities, is adding to the uncertainty facing the housing market outlook. NAB expects the market will continue to soften into 2018.
Federal Budget 2017-18
The recent Federal Budget contains a few proposals that may factor into the direction of property prices as we move further into 2017. Foreign investors might put less pressure on the market if an annual foreign investment levy goes ahead, which will kick in when foreign investors leave their property vacant for more than six months. It’s also proposed that a capital gains tax should apply to foreign property owners who sell their main residence. An incentive for older Australians to downsize, along with a super savings scheme for first home buyers, may also affect property availability.
It seems property prices may be coming off the boil, but the degree of cooling is a case of ‘watch this space’.