With the Stage 3 tax cuts due to finally put a bit of extra cash in “our pockets”, I have been wondering what sort of impact it would have on borrowing capacity when it comes to applying for a home loan.  How much would it help home buyers to reach further and be able to borrow more when buying a home.

I ran numbers on a few scenarios and here is what I found:

Scenario 1: Single person with no dependents or debts earning $100,000 gross pa. Can borrow $20,000 more now.

Scenario 2: Single person with no dependents or debt earning $150,000 gross pa. Cn borrow $80,000 more now.

Scenario 3: Couple with no dependents or debt, earning $150,000 gross pa and $100,000 gross pa. Can borrow $60,000 more now.

Scenario 4: Couple with 2 kids. No debt. Earning $75,000 gross pa each. No additional borrowings.

Scenario 5: Couple with 2 kids. No debt. Earning $150,000 gross pa and $100,000 gross pa. Can borrow $100,000 more now.

So the impact of the tax cuts is inconsistent and but where it adds to borrowing capacity it does not suddenly lift home buyers into the next tier of house prices really, but it does help at the margins to stretch just that little bit further.

Of course most other people will be getting a similar benefit so how the tax cuts actually help, rather than just pushing up property prices, will be interesting to see.

While the the tax cuts do improve the borrowing capacity of all clients, the benefit is not as large as I was expecting 2 reasons;

  1. The final tax cuts delivered are in many cases less than what was long promised.  For some, the tax saving is half what was originally on the table. I am not commenting on the decision to change the tax cuts delivered other than to note that the tax cuts changed
  2. While the tax cuts aid borrowing power, the cost of living continues to rise and eat into the benefit that the tax cuts otherwise deliver. This is especially so with households with dependants.

Please contact us if you are looking at buying a new home and want to look at your borrowing power.
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