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Described as a budget for “fairness” by Treasurer Morrison, Tuesday night’s budget brought some relief to first home buyers and a lot of tears to Australia’s largest five banks that now face a new tax, stronger regulatory bodies and fines up to $200 million for breaching the new rules of misconduct.

Apart from increasing homelessness funding to states and establishing a National Housing Infrastructure Facility to aid the development of new houses across the country, the budget introduced several housing affordability measures, including a super ‘saver’ scheme for first home buyers aimed at overcoming the common deterrent faced by most home buyers – saving up for a deposit.

Budget-2017

Easing the pressure on the housing market

The latest budget introduces The First Home Super Saver Scheme allowing Australians hopeful of entering the property market an opportunity to save funds at a discounted rate through additional contributions to their superannuation fund.

Since superannuation contributions are taxed at more favourable rates, the move will encourage first home buyers to save for their deposit faster. Both partners in a couple can take advantage of the scheme that will allow a maximum contribution of $15,000 in a year and $30,000 in total. The additional contributions and earnings on them will be taxed at a concessional rate of 15%, and withdrawals will be taxed at marginal rates minus 30%.

However, the scheme does not address the fact that incomes in Australia (and consequently, the savings) are not increasing in line with the rising property prices, which means a 20% deposit may still remain a distant dream.

Retirees and Foreign Buyers

To further ease the housing market and address the woes of Gen Y that feels locked out of the property market, the government has introduced an incentive of $300,000 to retirees who are looking to downsize. Most retirees will welcome the move as they often find themselves grappling alone with the maintenance of large family homes and refrain from downsizing due to the costs involved. Under the new scheme, home owners who are 65 and above can make non-concessional contributions of up to $300,000 to their super on the sale of their family home that they have been living in for ten years or more. Both partners in a couple can take advantage of the scheme that will surely boost housing supply in the country. However, the high stamp duties may still deter some retirees from downsizing.

Another bold move in the slew of measures introduced to ease the pressure on the housing market is the restriction of foreign ownership in new developments. Renters will also breathe a sigh of relief as foreign owners who leave their properties vacant for over six months will now end up paying an extra fee, encouraging them to rent out their properties that have been sitting vacant and consequently reduce some pressure from the tightening rental market.

Big Banks – The biggest losers

The big banks in Australia will be hard hit by the 0.06% levy starting the beginning of July, generating $6.2 billion for the government over the next four years. (Customer deposits of less than $250,000 and superannuation funds have been exempted from the levy.)

Anna Bligh, chief executive of the Australian Bankers’ Association, called the new tax a “tax on the economy” that “will affect the entire banking system”.

Indeed, despite the Treasurer’s warning to the banks to not pass the levy to customers,it is being feared that the big banks may increase home loan interest rates to maintain profitability. However, these fears are unfounded as mortgage lending is excluded from the provision. Further, the Australian Competition and Consumer Commission may require the banks to explain any interest rate or fee hikes during the year. However, it is unclear whether the Commission can prevent these hikes or not.

The federal budget also announced a new Banking Executive Accountability Regime wherein all senior executives must be registered with APRA. Breach of new mandatory requirements will not only strip the executives of their bonuses but also cost dearly to banks that hide misconduct of their employees with big banks paying to a tune of $200 million. There is also the promise to establish a simpler system for resolving disputes with banks.

First Home Buyers

Talking about the overall effect on the mortgage sector, many first home buyers will be encouraged to dive into the property market, turning it more competitive than ever before. The budget includes some practical reforms that will not only increase the housing supply in the market but also enable first time home buyers to save for a deposit faster than ever before and, probably, also negotiate a better home loan rate with a larger deposit amount in their kitty.

Simultaneously, the budget also provides for comprehensive reforms to make Australia’s banking sector that has so far been dominated by the Big 4 more accountable to its customers. With the steadily declining satisfaction levels of the customers of the Big 4, the move to increase competition in the banking sector by encouraging new entrants and consequently providing more choice to customers for their banking needs is a welcome one. The new levy on big Australian banks with liabilities above $100 billion is, in fact, consistent with other advanced nations and will foster competition from smaller banks, creating more opportunities for home buyers regarding greater choice and better deals.

The latest reforms in the financial sector coupled with other reforms by the Government to establish Australia as a leading global financial technology hub by introducing a world-leading regulatory sandbox indicate a major shift in the mortgage industry, making it much more borrower-friendly in the future than ever before.

Own your home sooner

FinTechs like HashChing are already helping the first time and existing home owners leverage lower home loan rates through broker pre-negotiated deals from over 60 big and small financial institutions across Australia. With the latest budget, the startup’s resolve to make the mortgage marketplace more transparent and on-demand just got a further boost.

If you have been waiting on the fringes of the Australian property market, looking for the right time to dive into it, it seems your time is here. With financial discipline, as a couple, now you can save up to $60,000 extra for your home loan deposit and save even more with low interest rate home loans you can compare online. Contact an experienced broker online to understand your options better.

 

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HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.