Australia’s Stage 3 Tax Cuts Boost Home Loan Borrowing Power

Australia’s Stage 3 tax cuts, set to take effect from July 1, are designed to reduce the amount of tax people pay, increasing their take-home pay. This increased take-home pay has a direct impact on borrowing capacity, particularly for home loans.

When people pay less in taxes, their disposable income rises. Banks and lenders consider this higher disposable income when determining how much they can safely lend to a borrower. With more money available after taxes, individuals can demonstrate a greater ability to repay a loan, thus qualifying for larger home loans.

To illustrate the impact, let’s look at some specific examples. For someone earning $100,000 a year, the tax cuts could enable them to borrow an additional $25,000. Those earning $150,000 annually could see their borrowing capacity increase by $37,000, and individuals with an income of $190,000 could potentially borrow an extra $50,000. This applies to each borrower in the loan application.

In essence, these tax cuts have the same effect on affordability as a 0.5% reduction in interest rates. This means that while the interest rates themselves haven’t changed, the increased disposable income provides a similar boost in borrowing power.

These figures highlight how substantial the effect of the tax cuts can be. With more disposable income, not only can people afford to borrow more, but they can also manage larger mortgage repayments, making home ownership more accessible to a broader segment of the population.

Written by Chris Hill

I have been in financial services for 20 years and joined Smartmove in 2014. I enjoy working with such a passionate and dedicated team. Drawing on over 10 years’ experience in mortgage lending I pride myself on offering my customers honest and professional advice and always seek to ensure I meet and exceed customer expectations.

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