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Screen Shot 2019-05-31 at 3.12.51 pmWith the election done and the banking royal commission behind us, the property landscape now has a chance to reconcile and regain momentum. It has been an uncertain period within the property market due to Labor’s proposed changes to negative gearing, capital gains and various taxation rulings. The Liberal Government’s surprising win and ‘business as usual’ approach will provide a sense of stability and confidence for property but there certainly remains challenges across the market.

Likely interest rate reduction and changes to serviceability

Amid falling housing prices, The Australian Prudential Regulation Authority (AHPRA) has proposed lowering the minimum interest rate serviceability test to 7 per cent. Lenders use a serviceability test to stress test what capacity a borrower has to meet the loan repayments. Lenders stress-test their applicants at a rate of 7.25% – 8% but now there is a push to reduce that margin to 7 per cent. This will basically mean an increase in borrowing capacity of around 9% for all applicants.

With an annual decline in housing prices in Melbourne and Sydney by 10% and 10.9% respectively, these proposed changes are aimed to stimulate the economy by enabling access to credit. The combination of increasing the borrowing capacity of loan applicants and a looming RBA rate cut will add fire power to a borrowers capability.

Negative Gearing and Capital Gains to remain unchanged

A major platform for the Labor Party was to make some significant changes to negative gearing and Capital Gains Tax. These proposed changes in an already uncertain property landscape was unpopular across the 1.3 million Australian property investors who appeared to reject this change. For First Home Buyers, the proposed changes were thought to reduce property prices however drive rent upwards as landlords would have demanded a higher rental yield because they will no longer be eligible for a tax concession. If this change went ahead, rental repayments would have increased which would make saving a deposit that little bit harder.

First Home Buyer Incentives

The Morrison Government has proposed to provide support to First Home Buyers with the establishment of a First Home Loan Deposit Scheme. This scheme is yet to be finalised, however what we know so far, it is as follows:

  • Accessible to 10,000 First home Buyers who will need to apply to be approved
  • Applicants will only require to have saved a 5% deposit
  • Maximum income for a single applicant is $125,000
  • Maximum combined income for a couple is $200,000
  • Those approved will be able to purchase a home without the need for Lenders Mortgage Insurance as the Government will provide a guarantee. Depending on the price of the purchase, this is a saving of around $10k to the purchaser.

Commencing on the 1stif January 2020 has mixed opinions.  There is concern that more and more First Home Buyers will access larger loans with a smaller deposit making their loan to value ratio (LVR) exceptionally high. For others, this scheme brings a fresh sense of optimism in the hope that home ownership will be slightly more achievable in a very competitive market.

In short, there are some small adjustments to the lending space that will have an effect on the demand for property. It is likely that this will see an increase in demand for property in the short to medium term.

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