Tax cuts could boost your borrowing power by $47,000

- June 28, 2024 2 MIN READ
tax cuts direction sign

Aspiring home buyer’s borrowing capacity has been slashed by rising interest rates but could increase by up to $47,000, thanks to next week’s incoming stage 3 tax cuts.

While this is great news for house hunter hopefuls, there may be some unintended consequences, including even higher property prices.

These tax cuts have the potential to boost borrowing power significantly, but rather than helping people reach their property goals faster they may just end up paying more as bigger deposits threaten to push up property prices.

This is a particularly difficult time for anyone trying to get their first foot on the property ladder. Ever-rising property prices and higher rents coupled with inflation mean that it’s taking people longer to save for a deposit. For some, these tax cuts may seem like the golden ticket.

I really encourage people to run a mortgage stress test before making use of their improved borrowing capacity.

But tax cuts aren’t the only way aspiring homeowners could boost their borrowing power.

Reduce your credit card limit – or get rid of it

When lenders calculate borrowing power, they use the entire credit card limit, rather than the balance, as part of their serviceability calculations. Therefore, reducing your limit or closing your credit card may help boost your borrowing power.

For example, a $10,000 credit card limit held by someone earning $100,000 would reduce their borrowing capacity from $552,000 to $505,000 – a difference of $47,000.

Know your credit score

Websites like Compare The Market provide free credit score checks to help you understand how strong your borrowing position is. Lenders use your credit score and credit history to calculate risk when assessing your application. Improving your credit score is one way to improve your chances of being approved.

Pay off any debts

Banks must consider all financial obligations when calculating your ability to repay debt including credit cards, car loans or personal loans. If you work to reduce or eliminate your high interest rate debts, you may be able to increase your borrowing capacity.

Consider a joint purchase

You could team up with a family member, partner or friend if your borrowing capacity isn’t high enough and you’re struggling to meet the lender’s income requirements.

Joint purchases have become a popular way for many to break into the property market. Two incomes are usually better than one – so you may find your borrowing power increases with an additional person on the loan.

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