The Federal Budget and the Australian Property Market

Given the COVID-19 pandemic, this year’s budget understandably focused largely on economic stimulus and support.

While there weren’t too many major changes related to housing or housing affordability, the 2020 Federal Budget did deliver some news that could positively impact first home buyers, homeowners and investors.

More help for first home buyers

The First Home Loan Deposit Scheme (FHLDS) has been expanded to include an additional 10,000 buyers. The scheme guarantees 15% of the value of a newly built first home, allowing first home buyers to purchase with as little as a 5% deposit. Not only does this make getting into the market more achievable, it lets first home buyers avoid expensive Lenders Mortgage Insurance (LMI).

The scheme only applies to newly built homes under a certain price threshold. However, this year’s budget also announced that those thresholds would be increased to $950,000 in Sydney, $850,000 in Melbourne, and $650,000 in Brisbane, making it easier to buy in Australia’s most expensive property markets.

To be eligible for the scheme as an individual or couple you need to be both a first home buyer and an Australian citizen buying a property as your primary residence. You’ll also need to earn under $125,000 a year as a single or combined $250,000 as a couple. There are 27 participating lenders and you must apply through them directly.

Note that taking advantage of the scheme won’t prevent you from accessing other government help for first home buyers such as the first home buyer grant, HomeBuilder or stamp duty concessions or exemptions.

Changes to granny flat laws

The budget also announced that the Capital Gains Tax (CGT) will be scrapped for so-called “granny flats” as of 1 July 2021, particularly when there is a formal agreement in place for a family member to reside in the property as their home. This will help support older and disabled Australians and their families by making it easier for them to live close to family members and possibly stay independent for longer.

"Under the measure, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities," said Treasurer Josh Frydenberg.

Personal tax cuts

The budget will deliver tax cuts to 11.5 million workers in a plan to jolt the economy out of Australia’s first recession in 30 years. This could help those trying to pay down their mortgage or save for a first home faster.

The fast-tracked tax cuts will be backdated to 1 July, meaning millions of workers could see more money in their pay packets within weeks. Tax thresholds have also been raised with the 19 percent threshold rising from $37,000 to $45,000, and the 32.5 percent threshold from $90,000 to $120,000.

The Low and Middle Income Tax Offset, which ranges from $255 to $1,080, will remain for another year. When this offset is combined with the tax cuts, singles could get back up to $2745 and dual-income families could get back up to $5490.

Changes may also be coming to the credit market

In late September, shortly before the Federal Budget announcement, Treasurer Josh Frydenberg also announced proposed changes to lending laws for consumers and small businesses that may help stimulate the property market.

In the wake of the Global Financial Crisis (GFC) and Banking Royal Commission, lending criteria have been steadily tightened. This has resulted in an often lengthy and complex application process for would-be borrowers. The proposed changes would reduce the verification procedures required by banks, meaning that borrowers will need to supply less information in order to secure a loan. This could shorten application times and increase borrowing capacity, making it easier for people to get into the market or refinance their loans. Assuming the laws passed in Parliament, they will come into effect in March 2021.