Budget 2014 and your home loan

Now that the budget is known, it’s time to do some tax planning for 30 June 2014. The clock is ticking and it is important that steps are taken to maximise the opportunities. For example, if you have an investment property loan, you should consider taking out an Interest in Advance home loan where you pre-pay 12 months interest and therefore receive a tax deduction for the interest this financial year. If you do this, then lodge your tax return as soon as possible after 30 June 2014 and receive your tax return. This strategy has both tax and cash-flow advantages.

What impact will the Federal budget have on mortgage interest rates? As a contractionary budget this will tend to put downward pressure on interest rates as consumers will save more because of the psychological impact that comes with the “pain being spread around”. Consumers will feel there is greater economic uncertainty and as the housing market has already been running hot for 12 months now there is likely be a slow-down and possibly some price corrections. The Reserve Bank of Australia is not likely to reduce interest rates further, unless there is a major recession. They wish to keep their monetary policy options open, unlike their counterparts around the world.

The budget has implications for all home loan borrowers. Notably, with the re-introduction of indexation on petrol, this means that everyone’s disposal income will be impacted. The Australian Consumer and Competition Commission (ACCC) need to closely monitor prices to ensure that the petrol companies will not take advantage of the change. Has anyone noticed how petrol prices have continued to rise even though the Australian dollar has appreciated in value? The increase in the pension age from 67 to 70 and other changes to superannuation means that you should check your financial plan. Is it still valid?

If the above resonant with you and you wish to discuss your situation, please call us on (02) 9233-1111 for a free consultation.