How changes to Capital Gains Tax could impact housing affordability

How changes to Capital Gains Tax could impact housing affordability

Newly released research from the Housing Industry Association (HIA) suggests that an increase in Capital Gains Tax would raise the cost of renting and make housing affordability even more problematic.

On behalf of the HIA, the Centre for International Economics (CIE) investigated how changes to the Capital Gains Tax (CGT) would affect the current economy. More specifically, the investigation sought to understand how an increase in Capital Gains Tax would impact the housing market for both renters and first-time home buyers.

The research has highlighted significant consequences an increase in CGT would have on the Australian housing market. One of the most impactful issues for everyday Australians would be the decrease in affordable housing.

HIA principal economist, Tim Reardon, said that “increasing the tax on housing will result in less investment in housing, fewer houses being built and inevitably a worsening of the affordability challenge.”

“Increasing the tax on investment homes may initially benefit first time home buyers, but over time this gain will be lost as rental costs rise leading to higher home prices that will once again force first time home buyers out of the market.”

Mr Reardon concluded by pointing out that “we cannot tax our way out of the housing affordability problem.”

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How do I save for a mortgage when renting?

Saving for a deposit to secure a mortgage when renting is challenging but it can be done with time and patience. If you’re on a single income it can be even more difficult but this shouldn’t discourage you from buying your own home.

To save for a deposit, plan out a monthly budget and put it in a prominent position so it acts as a daily reminder of your ultimate goal. In your budget, set aside an amount of money each week to go into a savings account so you can start building up the ‘0’s’ in your account.  There are a range of online savings accounts that offer reasonable interest, although some will only off you high rates for the first few months so be wary of this.

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Real Time RatingsTM ranks home loans according to cost and flexibility. This allows you to compare products using a simple score out of five.

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Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

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Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

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Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

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Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

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If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

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Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success