From 1 July 2024, the stage 3 tax cuts will come into effect, reducing the total amount of tax you will have to pay on your income, which will ultimately put more money into your back pocket.

These cuts will make a difference from your first pay packet - because the amount of tax that is normally withheld will be reduced. To see the impact of these tax cuts on your salary, you can use this calculator from the Treasury here.

For anyone looking to secure a home loan, these tax cuts - and the subsequent increase to your take home pay - could mean your borrowing capacity, that is, the maximum amount you can potentially borrow from your bank for a home loan, gets a bump too.

How will a tax cut increase my borrowing power?

When a bank is assessing you for a home loan, there are a number of things they will review, including your deposit size and your credit history.

However it is your income (and the income of whoever you may be applying for the home loan with) that is one of the most important things they will consider.

With a tax cut, the amount of money you can spend per pay packet increases, which increases the amount you could then pay on your monthly mortgage repayments.

How much more could I borrow with stage 3 tax cuts?

RateCity.com.au research shows for a single person on a $100,000 income (before

tax), their total borrowing capacity could potentially increase by more than $20,000 once the tax cut takes effect. For a family earning $150,000, their borrowing capacity could increase by almost $30,000.

It’s important to remember that calculations are estimates only and a person’s maximum borrowing capacity will depend on their specific financial situation and in some cases, the lender they are applying with. For personal advice, we recommend reaching out to a mortgage broker or directly to your preferred lender.

Potential increase to borrowing capacity for a single person earning $100K

Based on someone with no additional debts (including credit card debt), with minimal expenses, applying for a loan with a 20% deposit with a big four bank.

Potential increase to borrowing capacity for a family of four earning $150K

Based on a family of 2 adults, 2 children, with no additional debts (including credit card debt), with minimal expenses, applying for a loan with a 20% deposit with a big four bank.

What are other ways I can boost my borrowing capacity?

Trying to secure the home of your dreams can be tricky - particularly when house prices continue to hit record highs, all while the cost of living increases too.

However, securing your perfect property can be a lot easier by making some changes, or different decisions on how you spend your money.

Here are some ways you could increase your borrowing capacity

• Close down your credit card
  • When assessing your application for a home loan, the bank will look at any debts you have owing including your credit card limit, even if you don’t owe a single dollar on it. If you shut down your credit card, you’re likely to see your borrowing capacity increase significantly.
• Look for a low rate
  • A higher interest rate means higher monthly repayments. The lower your variable interest rate, the more you are likely to be able to borrow.
• Increase your income
  • This is the easiest way to increase your borrowing capacity - but can definitely be the hardest! If there’s an opportunity to increase your pay on an ongoing basis, you should be able to increase your borrowing power.
• Cut back on your spending
  • The less you spend, the more you save, which means you will have a bigger deposit, which means you could get a lower interest rate! Prioritise your budget, and try to eliminate any bad spending habits at least three months out from applying for a mortgage.
• Get help from a mortgage broker
  • Speaking with a professional mortgage broker will give you direct access to a lot of the information and answers you’ll need on your journey to purchasing a home.

After taking a break in April 2024 due to the new RBA meeting schedule, the Board of the Reserve Bank of Australia (RBA) will be back to meet in May to decide whether any changes to Australia’s monetary policy will be required. 

While economists from some of Australia’s leading banks are generally expecting rates to stay on hold this month, their longer-term predictions could shift as a result of new economic data, such as inflation figures. It remains to be seen whether the RBA’s next move will be a long-awaited cut to the cash rate, or giving it a hike.

From May 2022 to November 2023, the Reserve Bank of Australia (RBA) increased the cash rate 13 times, in an effort to tame inflation.

This current cycle of cash rate movements started with a cash rate of 0.10% in April 2022. We are now considered to be at the peak of the cycle, with a rate of 4.35%.

Many borrowers are eager to know when the RBA will begin cutting the cash rate. If the RBA does choose to cut - and provided the borrowers’ bank passes the cut on in full - it could mean relief for mortgage repayments.

However there are a number of factors that will determine if the RBA will cut the cash rate, but we can look to the big four bank economic teams for some clues.

Big four banks’ cash rate forecasts

The RBA has kept the cash rate on hold at its first two meetings of 2024, and while the most recent quarterly inflation data suggests another hold at May's meeting, it’s never a guarantee.

The big four bank economic teams have all cast their predictions for the next series of cash rate movements:

• CBA: Peak of 4.35% in November 2023, then dropping to 2.85% by June 2025
• Westpac: Peak of 4.35% in November 2023, then dropping to 3.10% by December 2025
• NAB: Peak of 4.35% in November 2023, then dropping to 3.10% by November 2025
• ANZ: Peak of 4.35% in November 2023, then dropping to 3.60% by June 2025

Keep in mind that these are just predictions, and that the big banks are subject to change these forecasts.

What would a cash rate cut mean for my home loan?

According to the Reserve Bank of Australia, the average existing owner-occupier is on a variable home loan rate of 6.36%.

This is what average home loan interest rates may look like if the big four bank predictions are accurate, and the banks pass on the rate cuts in full.

Average interest rates based on big four bank cash rate predictions

Source: RateCity.com.au, big bank cash rate forecasts as of 24/04/2024. 

If you are currently on a variable rate home loan, and your lender has passed on on these rate hikes in full, you may find your home loan repayments have become significantly more expensive.

If you are still on a fixed rate home loan from the low-rate era, when your loan term ends you may be reverted to a much higher interest rate.

How high have mortgage repayments risen?

RateCity has crunched the numbers on how these rate hikes could have affected repayments on a 25-year, $500,000 home loan.

Assuming that your lender passed on every single cash rate hike in full to your home loan, and that you are on a variable rate loan, you may find that your monthly repayments were $1210 more expensive in April 2024 compared to April 2022.

How much more you may pay on your home loan in 2024

Source: RBA average owner-occupier variable rate for existing customers, April 2022. RateCity.com.au. Note: Based on a 25-year, $500k home loan, comparing repayments with RBA average rate in April of 2.86% versus a 7.11% interest rate from CBA’s predicted cash rate peak of 4.35% in 2024. Does not factor in fees.

This is a significant amount for homeowners to find within their already strained household budgets - the equivalent of buying a new iPhone every month! Homeowners may want to take action as soon as possible to accommodate higher repayments, including:

• Making extra repayments to chip away at your loan principal;
• Paying into an offset account or redraw facility to help reduce your interest charges; and
• Refinancing to a lower-rate lender if it suits your financial needs and budget.

The latest figures from the Australian Bureau of Statistics (ABS) show that Australia’s annual inflation rate is continuing to decline. But will it be enough for a long-awaited interest rate cut to arrive before the year’s end?

What are the latest inflation figures?

According to the ABS, the Consumer Price Index (CPI) rose 1.0% in the March 2024 quarter and 3.6% annually. This follows a 0.6% rise in the December 2023 quarter.

The most significant contributors to the March quarter rise were:

• Education (+5.9%);
• Health (+2.8%);
• Housing (+0.7%), and;
• Food and non-alcoholic beverages (+0.9%).

ABS head of prices statistics, Michelle Marquardt, said that the quarterly rise in Housing was driven by Rents (up by 2.1%) and New dwellings purchased by owner-occupiers (up by 1.1%).

"Rental prices rose 2.1% for the quarter in line with low vacancy rates across the capital cities. Rents continues to increase at their fastest rate in 15 years.”

The ABS also released the monthly CPI indicator, which rose 3.5% in the 12 months to March 2024, compared to a rise of 3.4% in the 12 months to February 2024.

What does this mean for interest rates?

Many Australian homeowners are currently struggling with their home loan interest rates, with the Reserve Bank of Australia (RBA) having hiked the national cash rate 13 times since May 2022. These hikes were intended to take on Australia’s high inflation, which peaked at 7.8% in December 2022. As the RBA’s target band for inflation is between 2% and 3%, the current rate of 3.6% is still too high for comfort.

As part of its February 2024 Statement on Monetary Policy, the RBA forecast that inflation would decline to 3.2% by the end of 2024, and to 2.8% by the end of 2025. It’s not yet certain if inflation will moderate to match the RBA’s predictions, which forecast 3.3% inflation by June 2024.

Following the last RBA Board meeting in March 2024 where the cash rate was kept on hold, RBA Governor Michele Bullock said that "we're not ruling anything in and we’re not ruling anything out” in regard to monetary policy. Depending on the economic data for the rest of the year, the RBA could choose to keep the cash rate on hold, or even hike the cash rate by another 25 basis points to help keep inflation on schedule.

Following the latest inflation data, some economists have adjusted their own cash rate forecasts. For example, while Westpac previously predicted a rate cut by September, this has now been pushed back to November 2024.

Westpac chief economist, Luci Ellis, said the RBA “will probably continue to be cautious about services inflation and domestic pressures broadly for a few months yet. We therefore do not expect any change to the messaging about not ruling anything in or out for another few months.”

Some economists are predicting that the RBA could make additional cuts in 2025, depending on the economic conditions and progress towards the RBA’s inflation target band.

But if you don’t want to wait for the RBA or your bank to give you an interest rate cut, you can consider taking steps to give yourself a home loan repayment discount, such as:

• Making extra repayments
• Taking advantages of an offset account
• Refinancing to a lower rate
• Refinancing to a lower rate AND making extra repayments

Have you ever considered financial hardship, or felt unsure how debt consolidation could help you?

Navigating a tough financial situation can be tricky - so to help provide some guidance, RateCity spoke to Joanne Edwards, Chief Operating Officer of Wisr, a neo-lender and fintech that is focused on improving the financial wellness of all Australians and helping them make smart decisions.

Wisr Chief Operating Officer, Joanne Edwards

There are so many of us struggling with the cost of living. If someone is struggling to make repayments on any debts they may have, should they ask to be put on hardship straight away?

There are four key things Aussies need to know about hardship:

1. Hardship is a short-term, unplanned event from which you are expected to recover within a short period of time
2. If you are struggling to meet basic bills due to the increased cost of living, the best option is to call your credit providers to discuss your personal situation and seek assistance in the form of a temporary or permanent variation of your credit contract. (Your credit provider is obligated to assess your situation and determine whether they can vary your credit contract to a payment you can afford during hardship.)
3. Your credit score will be protected if you enter a financial hardship arrangement with your credit provider, as they will report your account status as under financial hardship - this information can’t impact your credit score.
4. If you’re in a position to do so, try to make reduced payments to your commitments, e.g. 50-80% and don't ask for a deferral - a deferral is kicking the can down the road and may result in higher interest payments in the long term.

While hardship can help, what impact could it have for any future financial decisions or activities?

Missing payments towards your credit contract are treated differently than financial hardship arrangements with your credit provider. If a life event occurs, such as losing your job or a medical condition, entering into financial hardship with your provider is a more favourable outcome for your long-term credit profile. Whereas missing payments will be reported to the credit bureau and remain on your file for 24 months and will impact your credit score.

Financial hardship arrangements are reported as a flag. However, this flag will only remain for 12 months and will not impact your credit score. The hardship flag is designed to protect you and does not necessarily mean you’ll be declined for credit.

At Wisr, we may not lend new money to someone currently in hardship. However, we will still review applications seeking to refinance as that decision may be favourable for a customer if the interest rate or terms are better.

Once a hardship event ends, your credit score is protected and we will not directly decline these customers. Still, we will review and make enquiries into the individual situation, whereas in the event of arrears, that would be more likely to lead to a decline decision.

When you’re struggling with finance, forming a positive money habit can seem impossible, but what would you say is an easy way to start?

Personally, I find that setting aside time each week to review bills, budgets, and spending habits really helps to clarify how I’m doing with my goals, where I need to go, what I need to work on (like not buying that extra cup of coffee!), and what my wins are.

• Start by working out your weekly non-negotiables. Identify essential purchases like groceries, weekly social activities and household expenses. Once you’ve calculated these regular expenses, you can factor the average cost into your budget to help ensure you have enough monthly cash to cover.
• Direct debiting your bills is a simple but effective way to stay up-to-date and keep your credit scores in check. Direct debiting your utilities like internet, insurance and phone bills can help ensure you don’t miss a payment. While direct debiting these payments won’t impact your credit score, a dishonoured payment can.
• Technology can help to save a little more. For example, the Wisr App has a feature that allows users to round up daily purchases (like a money jar for digital spare change). You could then put this difference aside to pay your bills (gas, electricity, etc.), grow your savings or pay down debts. Your everyday transactions, such as groceries, fuel, transport or that morning coffee, could help you save hundreds of dollars each year without additional budgeting.
• Asking your providers for a better deal could help you save hundreds of dollars annually. I make this a yearly ritual to see what deals providers can offer. Researching competitive rates and potential savings could put some cash back in the budget.

Refinancing or debt consolidation isn’t just for home loans – what else can you refinance? How could this help?

Debt consolidation can help you manage multiple debts like credit card debts, personal loans, or other unsecured debts by rolling them into one loan. One loan, one monthly repayment, one interest rate. This can be easier to manage and pay off your debts without having the temptation to spend up to your credit limit again. It can also help to improve credit scores by having fewer active credit products.

When consolidating your debts, it's important to look for a loan with a low interest rate and consider any loan fees, such as establishment and ongoing fees, as this will help reduce the overall cost of your loan. There are multiple pros and cons to consolidating your debts, so doing your research first is important.

Some benefits of debt consolidation are:

• It simplifies the process of paying off multiple debts.
• It can potentially reduce the overall interest and fees you pay, but do the calculations before you sign a contract.
• It can help you to better manage your debt, and good debt behaviour can improve your credit scores.
• It can help you to manage your money more effectively.

Some risks of debt consolidation include:

• It probably won’t address the underlying issues that led to the accumulation of your debt.
• It can lead to an increase in overall debt if you continue using credit cards, buy now, pay later, or take on new loans. Best to close these for good when consolidating.
• It can have a negative impact on credit scores if not managed properly.
• Opting for a longer loan term on your debt consolidation may mean your monthly repayments are lower. However, it could also take you longer to pay off.

What’s one piece of advice you wish you could give your younger self, when it comes to money habits?

Live within your means. If you can’t afford something, do not buy it.

Read any credit contracts fully, and if in doubt, seek independent legal advice. If in trouble, engage with your Credit Provider and do not avoid them - most of the time, they are just trying to help you!

From 1 July 2024, the stage 3 tax cuts will come into effect, reducing the total amount of tax you will have to pay on your income, which will ultimately put more money into your back pocket.

These cuts will make a difference from your first pay packet - because the amount of tax that is normally withheld will be reduced. To see the impact of these tax cuts on your salary, you can use this calculator from the Treasury here.

For anyone looking to secure a home loan, these tax cuts - and the subsequent increase to your take home pay - could mean your borrowing capacity, that is, the maximum amount you can potentially borrow from your bank for a home loan, gets a bump too.

How will a tax cut increase my borrowing power?

When a bank is assessing you for a home loan, there are a number of things they will review, including your deposit size and your credit history.

However it is your income (and the income of whoever you may be applying for the home loan with) that is one of the most important things they will consider.

With a tax cut, the amount of money you can spend per pay packet increases, which increases the amount you could then pay on your monthly mortgage repayments.

How much more could I borrow with stage 3 tax cuts?

RateCity.com.au research shows for a single person on a $100,000 income (before

tax), their total borrowing capacity could potentially increase by more than $20,000 once the tax cut takes effect. For a family earning $150,000, their borrowing capacity could increase by almost $30,000.

It’s important to remember that calculations are estimates only and a person’s maximum borrowing capacity will depend on their specific financial situation and in some cases, the lender they are applying with. For personal advice, we recommend reaching out to a mortgage broker or directly to your preferred lender.

Potential increase to borrowing capacity for a single person earning $100K

Based on someone with no additional debts (including credit card debt), with minimal expenses, applying for a loan with a 20% deposit with a big four bank.

Potential increase to borrowing capacity for a family of four earning $150K

Based on a family of 2 adults, 2 children, with no additional debts (including credit card debt), with minimal expenses, applying for a loan with a 20% deposit with a big four bank.

What are other ways I can boost my borrowing capacity?

Trying to secure the home of your dreams can be tricky - particularly when house prices continue to hit record highs, all while the cost of living increases too.

However, securing your perfect property can be a lot easier by making some changes, or different decisions on how you spend your money.

Here are some ways you could increase your borrowing capacity

• Close down your credit card
  • When assessing your application for a home loan, the bank will look at any debts you have owing including your credit card limit, even if you don’t owe a single dollar on it. If you shut down your credit card, you’re likely to see your borrowing capacity increase significantly.
• Look for a low rate
  • A higher interest rate means higher monthly repayments. The lower your variable interest rate, the more you are likely to be able to borrow.
• Increase your income
  • This is the easiest way to increase your borrowing capacity - but can definitely be the hardest! If there’s an opportunity to increase your pay on an ongoing basis, you should be able to increase your borrowing power.
• Cut back on your spending
  • The less you spend, the more you save, which means you will have a bigger deposit, which means you could get a lower interest rate! Prioritise your budget, and try to eliminate any bad spending habits at least three months out from applying for a mortgage.
• Get help from a mortgage broker
  • Speaking with a professional mortgage broker will give you direct access to a lot of the information and answers you’ll need on your journey to purchasing a home.