Why the impending tax cuts should increase your borrowing power

The federal government’s Stage 3 tax cuts will take effect from 1 July, which will benefit the borrowing power of the average home loan customer.

Starting from the 2024-25 financial year, the new tax thresholds will be:

  • $0 to $18,200 – 0 cents in the dollar.
  • $18,201 to $45,000 – 16c.
  • $45,001 to $135,000 – 30c.
  • $135,001 to $190,000 – 37c.
  • $190,001 and above – 45c.

The current thresholds are:

  • $0 to $18,200 – 0c.
  • $18,201 to $45,000 – 19c.
  • $45,001 to $120,000 – 32.5c.
  • $120,001 to $180,000 – 37c.
  • $180,001 and above – 45c.

For a family on a combined income of around $130,000 – with one partner earning $80,000 and the other $50,000 – their combined tax cut will be over $2,600 per year or about $50 per week, according to government modelling.

Good news for borrowing power

Depending on your household income, these tax cuts could increase your borrowing power by tens of thousands of dollars.

That’s because the higher your post-tax salary, the more money you have to service a mortgage – and, therefore, the more that banks are generally willing to lend you.

PropTrack senior economist Paul Ryan said borrowers on lower incomes would particularly benefit.

“There’s a lot of people who are really constrained by borrowing capacities at the moment, particularly first-home buyers,” he said.

“First home-buyers in particular are doing it tough with higher interest rates and are the ones most constrained with borrowing capacities. I think it will give a bit of a boost to the market, particularly at the lower end of the market.”

Get in touch if you’re wondering what your borrowing power will be like from 1 July. I’ll compare lenders on your behalf (as borrowing power can vary significantly from lender to lender), so you know how much you can borrow and what kind of property you can afford.

Published: 18/6/2024

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