"Pieces are falling into place for first home buyers"
Yesterday was a massive day for would-be home buyers. APRA announced it plans to eliminate the 7 per cent serviceability buffer used to assess borrowers, and the Reserve Bank signalled a rate cut in June. But when will we see the all-important tax relief measures promised for July 1?
Rate cut coming in June
In his first address since the Morrison government was returned for a third term over the weekend, RBA governor Philip Lowe said yesterday that it would likely cut rates in June. He said higher unemployment is now preventing inflation targets from being met, making a case for a cut when the RBA meets in two weeks.
Mr Lowe was speaking at an event in Brisbane, where he participated in a Q&A session after his speech. The Fin ran a transcript of his comments today; it's an excellent read (paywall).
During his address, Mr Lowe called on the new government to take up its share of the heavy lifting by injecting stimulus into the economy. The man was clearly frustrated when he said monetary policy alone cannot fix the problems Australia's economy faces; it also requires “structural policies that promote firms hiring people, investing and being innovative and expanding”. Read: productivity, jobs and investment and consumer spending.
APRA removing 7 per cent serviceability buffer
The big celebrations yesterday were reserved for APRA's decision to remove the 7 per cent serviceability buffer, which it said had no place in a low interest rate environment. This will put the responsibility for determining a borrower's suitability for lending in the hands of the lender.
It is expected that lenders will cut their buffer rate to 6.25 per cent. This will significantly increase the amount a home buyer can borrow; according to James Kirby in The Australian today, an "average" household should get approximately $60,000 more without any change to their income.
Naturally, the Property Council of Australia, Stockland, Metricon and Lendlease were among the industry players publicly expressing their support for APRA's announcement yesterday. Harry Triguboff went so far as to say that he can stop discounting now thanks to the parade of factors putting more money in home buyer pockets this week.
The prevailing mood was that removing the serviceability buffer will give any RBA rate cut more impact. It will also give more opportunity to investors, who just a week ago were staring down the barrel of a prohibitive environment for anyone looking to improve their circumstances through buying property.
Government squiffy on tax cut timing
ScoMo promised during the election campaign that its tax relief package would be in place by the new financial year. Now it's looking like that won't happen, as Parliament won't be able to get itself together in time to pass the legislation by July 1.
Josh Frydenberg was talking yesterday about making the rules retrospective when it eventually sits to pass the bill. The seeming lack of urgency displayed by Mr Morrison yesterday angered a lot of people; not by accident did Mr Lowe make his calls to the government to pull its weight.
This from the editorial in today's AFR: "The first blush of the Coalition’s surprise win will soon fade. Mr Morrison understandably is keen not to suddenly unload a whole new agenda on voters who have shown their faith in him. But relying on ever cheaper central bank policy will not deliver the prosperity that he also is promising to promote."