The Australian housing market might see a significant shift if the Liberal Party wins the upcoming federal election on May 3. Opposition Leader Peter Dutton has announced a bold new policy aimed at first home buyers that would allow them to deduct mortgage interest payments from their taxable income – a first of its kind in Australia.
What is the First Home Buyer Mortgage Deductibility Scheme?
The proposed scheme would allow eligible first home buyers to claim tax deductions on interest payments for the first five years of their mortgage. Here's what you need to know:
- Eligibility: First home buyers purchasing a newly built home as their principal place of residence
- Deduction limit: Interest paid on up to $650,000 of the mortgage
- Income caps: Available to individuals earning up to $175,000 and couples earning up to $250,000
- Duration: Tax benefits apply for the first five years of the mortgage
- Retention: Once eligible, participants keep access to the deduction even if their income increases
What could this mean for First Home Buyers?
According to the Coalition, a first home buyer with a taxable income of $120,000 and a $650,000 mortgage at 6.1% interest could receive benefits of around $12,000 per year – or approximately $60,000 over the five-year period.
The actual benefit would vary based on:
- Mortgage size
- Interest rates
- Personal income
- Other tax deductions
How this compares to Labor's Housing Policy
The announcement creates a clear policy difference with Labor's approach to housing affordability:
Liberal Party Plan:
- Tax deduction on mortgage interest payments
- Focus on newly built homes to stimulate construction
- Potential savings of up to $12,000 annually for eligible buyers
Labor's Plan:
- Allow all first home buyers to purchase with just a 5% deposit
- No income caps or limits on places available
- $10 billion pledge toward building 100,000 affordable properties over eight years
Other housing measures in the Coalition's package
The tax deduction scheme is part of a broader housing strategy that includes:
- Boosting the Home Guarantee Scheme with higher income caps
- Increasing from $125,000 to $175,000 for individuals
- Increasing from $200,000 to $250,000 for couples
- Higher property price caps in most regions
- Uncapped places for First Home Buyer Guarantee and Regional First Home Buyer Guarantee
- Additional measures including:
Restrictions on foreign investors- $5 billion Housing Infrastructure Programme
- Super Home Buyer Scheme allowing up to $50,000 of superannuation toward deposits
- Changes to lending rules and serviceability buffers
- Construction industry support initiatives
Our Analysis: What This Could Mean for the Market
While the tax deduction policy offers substantial financial benefits to eligible first home buyers, it's worth considering some key aspects:
Potential positives:
- Significant upfront savings during the critical early years of a mortgage
- May help more first home buyers enter the market sooner
- Could stimulate new housing construction and supply
Considerations:
- Limited to newly built homes, which may be more expensive initially
- The long-term impact on housing affordability remains to be seen
- Economists may question the structural impact on Australia's tax system
What should First Home Buyers do now?
If you're considering buying your first home, it's worth understanding how these potential policies might affect your purchasing power. While neither policy is currently in effect, they provide insight into the different approaches to housing affordability.
Whether you're interested in a newly built home that might qualify for tax deductions under a Coalition government, or you're looking to enter the market with a smaller deposit under Labor's plan, speaking with a mortgage broker can help you navigate your options.
Our team stays up-to-date on all policy developments and can help you understand how these potential changes might affect your home buying journey. Book a consultation today to discuss your specific situation and develop a strategy that works for you – regardless of which party forms the next government.
