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How the 2021 federal budget will affect existing property owners

The 2021 federal budget was announced on Tuesday night by Treasurer Josh Frydenberg, and included a number of measures impacting existing homeowners.

Despite Australia’s strong response to the COVID-19 pandemic, the federal government is still taking steps towards economic recovery by announcing plans to invest in a range of areas such as infrastructure, job training, mental health and more.

From renovation incentives to tax cuts, let us break down what this year’s budget will mean for current homeowners and property investors.

1. HomeBuilder construction commencement period extended by 12 months

HomeBuilder has helped bolster the construction industry over the past year. It has encouraged homeowners to consider major renovations, and buyers to consider building a new home. The scheme gave eligible Australians $25,000 grants and the construction commencement period is set to be extended for another 12 months.

For those who have already applied for the scheme, this gives you ample time to begin renovations. It's important to note that the scheme is not welcoming new applicants, and is instead simply providing an extension on the time existing applicants have to commence construction.

If you are planning to undertake major renovations on your property but haven’t applied for HomeBuilder, or weren’t eligible, you may be able to access finance another way:

  • Use equity: If you have substantial equity in your home, you might be able to tap into it for renovation purposes. Since renovations can increase property value, your equity may end up being recuperated.
  • Construction loan: Construction loans are used to build new homes or to make major structural changes to an existing home (i.e. significant renovations).
  • Personal loans or credit cards: Financing a renovation through credit cards or personal loans may seem easy, but it can end up costing more than expected. Both credit products come with high interest rates, and you risk damaging your credit score if you miss a repayment, for example.

Renovating can be a great way to increase your property’s value, which might be on your mind if you’re thinking about selling or tapping into equity to invest. The higher your equity, the more of it you can access!

Read our article on value-boosting home renovation ideas for inspiration.

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2. Downsizer scheme age lowered

The downsizer scheme now allows those aged 60 and above to make a one-off, post-tax $300,000 (or $600,000 for couples) superannuation contribution after selling their home. Previously, the minimum age to participate in this scheme was 65.

The scheme hopes to encourage older Australians to sell their families homes which will free up housing for younger generations. In order to be eligible, you must have been living in your home for at least 10 years.

This change will also benefit women, who have been targeted in this year’s budget after last year’s drew criticism for not having enough focus on funding for women. Women make up about 55% of those using the downsizer scheme and 73% have balances below $500,000, according to the Women’s Budget Statement.

3. Changes to the Pension Loans Scheme

The Pension Loans Scheme (PLS) allows older Australians access to a voluntary non-taxable fortnightly loan from the federal government. It is available to part and full age pensioners, as well as self-funded retirees who own property in Australia. Those eligible are able to top up their pension so that on top of their fortnightly pension, they can get a loan amount of up to 150% the maximum fortnightly rate of the Age Pension.

The PLS essentially operates as a reverse mortgage, but it is administered by Services Australia. The government will typically recover the debt when the property secured to the loan is sold or from the borrower’s estate once they’ve passed away. Participants in the scheme don’t have to repay the loan while living in their home.

A No Negative Equity Guarantee will be introduced from 1 July 2022, meaning that borrowers under the scheme won’t owe greater than the market value of their property.

Another change in the PLS allows for lump sum payments. Singles will have access to lump sum payments of around $12,000, and couples will have access to around $18,000.

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4. Tax cuts extended

As part of last year’s COVID-19 recovery-focused budget, the Low and Middle Income Tax Offset was introduced. These tax cuts will be extended for another 12 months. See the table below for an idea of how much you could save:

$37,000 or less$225
$37,001 to $48,000$255 plus 7.5 cents for every $1 above $37,000 (up to a max of $1,080)
$48,001 to $90,000$1,080
$90,001 to $126,000$1,080 minus 3 cents for every $1 of the amount above $90,000

For existing homeowners, these tax cuts could put more money back in your pocket to put towards home renovations or property investments. Alternatively, homeowners could put this money towards paying down their mortgage, or adding to their offset account.

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5. No changes to negative gearing or capital gains tax

Property investors aren’t substantially impacted by this year’s federal budget. No changes regarding negative gearing or capital gains tax (CGT) were announced. Given that there is an election coming up, this is unsurprising as any changes in these areas could prove controversial.

A new financial year can signal a time to make changes to your own financial situation. For many investors and homeowners, this could include reviewing interest rates, checking the competitiveness of your home loan, or even considering a full home loan refinance.

Home ownership can be expensive, so it’s always a good idea to make sure you are still getting a good deal. If you’d like to chat to an expert about your current home loan, get in touch with a mortgage broker or Lendi Home Loan Specialist today.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, investing, investment, investment loan, investment property, capital gains tax, renovation, negative gearing, construction loan, interest rate

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