Is the 2014 Federal Budget a mortgage killer?
We look at Tony Abbott and Joe Hockey’s Federal Budget in detail to determine what the possible ramifications could be for those who will buy a home in the future. Whether you agree with the decisions handed down or not, we look at how the choices in ‘Federal Budget 2014’ could impact home buyers both now and in the future. We also look at the possible ramifications for credit expectations and the credit files of those in the firing line.
By Graham Doessel, Non-Legal Director of MyCRA Lawyers www.mycralawyers.com.au.
The property industry has been given a partial reprieve under the Federal Budget 2014, with negative gearing surviving, despite predictions it would be axed. The Government had also said during the Budget announcement that it expected interest rates to remain low in the near future, which is good news for home buyers and mortgage professionals.
But there are still a number of substantial areas in the Budget which cause negative fall out to filter down to Australian home buyers and be felt on the frontline of the mortgage industry, and we examine them.
Changes to unemployment benefits
There has been controversy about the Government’s harsh new rules on unemployment benefits. The unemployed who are 25-30 years old will have to wait 6 months to receive the Newstart Allowance. But despite the damning headlines, the rules aren’t quite as harsh as they appear. If an applicant was previously employed, the waiting time will be reduced one month for every year they had been employed. This means that if someone has legitimately lost a job prior to 6 or more years of work, they will be exempt from the government’s new stipulations.
It sounds like a good plan to boost employment, which could in turn be good for the housing and finance industries, except it seems to leave the potential for many people to be quite disadvantaged.
For those who are forced to wait a month or two before they can receive Newstart, there could still be problems. For instance, how is a 25-30 year old who lives out of home, who perhaps has a family or at least has incurred some level of debt, and who is unable to get work, expected to wait out one or two months, let alone six months with no money coming in – before they receive government help?
If the unemployed person is truly unable to secure work straight away for whatever reason, they are going to end up relying on credit to bridge the gap until they can either find paid work or become eligible for government assistance. Although the idea of making people wait sounds reasonable as an incentive to get “dole bludgers” off the couch and out in to the workforce, in reality the conditions just don’t seem fair for everyone across the board.
It brings to mind a survey I featured back in 2012 from Dun & Bradstreet. Their Credit Expectations Survey revealed at the time that a third of low income earners in Australia would only have been able to survive one month without paid work. What if you’re a low income earner, living in an area of high unemployment?
Furthermore in terms of the housing market – people who go through something like this in their 20’s could be ruined for major credit like a home loan. At best they’ll probably have a credit rap sheet of payday loans and fringe lenders. At worst, they’ll have defaults on their credit file.
Families saving for a home
There has also been a significant reduction in the Family Tax Benefit. The Family Tax Benefit Part B threshold has been reduced to $100,000 and will no longer be available after the recipient’s youngest child turns six. The Family Tax Benefit Part A will begin to reduce once the family’s income exceeds $94,316 per year. The School Kids Bonus will also be cut. Having three children is also no longer considered a “large family” with families of four children the cut-off for eligibility for the large family supplement.
Alongside these cuts, the fuel excise freeze has also gone. This means that fuel prices will rise every six months with inflation.
First home buyers
First Home Buyers, already with historically low numbers in Victoria, will have even less incentive to buy a home following this Federal Budget. There are a number of direct and indirect cuts which will impact them. The first is the scrapping of the First Home Savers Account:
First-home buyers saving for a deposit have lost an incentive with the scrapping of the First Home Savers Account (FHSA) in the Budget.
The Rudd government initiative, introduced in 2008, provided people saving for a deposit with tax breaks and co-contributions from the government.
Under the scheme, savers paid concessional tax rates of 15 percent on interest earned in the accounts and the government made a 17 percent co-contribution on the first $6000 contributed each year.
The government co-contributions to the accounts will end on July 1 and tax and social security concessions will be withdrawn from July 2015.
Mr Hockey said the accounts were being abolished because their low popularity.
The Government expects to make $143 million in savings over five years from its scrapping. (news.com.au ‘Federal Budget 2014: Homeowners and the property sector winners’).
In addition to this, the Government has decided not to review the First Home Owner Grant to keep it relative to house price movements, despite calls from the Real Estate Institute of Australia to do so.
Price hikes for Universities
University fees will be de-regulated after 2016 – and this will see a likely increase in University fees across the States. This could also filter through to the first home buyer market. Students will likely come out of their studies with a bigger debt to repay, and less money to save for a home.
There are some key issues for home buyers, particularly first home buyers given their rates are already so low. I believe it will be important to watch how things unfold over time, particularly how the new unemployment system is working. But for the housing industry, I don’t see this budget as being a big a mortgage ‘killer’ – but let’s hope it doesn’t end up hurting a little.
MyCRA Lawyers is an Incorporate Legal Practice focused on credit consultancy and credit file disputes. MyCRA Lawyers means business when it comes to helping those disadvantaged by credit rating mistakes.
The above piece is opinion only and does not constitute legal and or financial advice.