While none of the changes to the Capital Gains Tax or negative gearing have passed as legislation yet, Macquarie Bank has already updated its lending policies.
Macquarie notified its broker network that it would be applying the proposed restrictions to its lending criteria ahead of any formal legislative change. They are also crafting a new borrowing calculator set to launch very soon.
“These changes help us ensure property investors are able to afford their loan when the changes to negative gearing come into effect,” a Macquarie spokesperson said.
Westpac highlighted that these changes would affect borrowing capacity but has yet to implement any changes to their lending policy. The remaining Big 4 are still reviewing their policies.
What Are The Budget Changes?
The federal government removed negative gearing for future purchases of established investment properties. This allowed property investors to write off operating losses against their other income like their salary.
In practice, this meant a reduced income tax bill for investors if rent on their investment didn’t cover other expenses like maintenance, council rates, and interest.
The government also announced the removal of the 50% CGT discount that previously applied to properties held for more than 12 months.
The Impact of These Changes
These changes are most likely to be felt the hardest in Perth and Queensland cities. Investors have flocked to these cities due to their relative affordability, but rents have not kept up with property prices, causing many to utilise negative gearing.
Two things are likely to occur here. The first, demand will fall as a result of these changes as fewer investors are either able or interested in holding property investments. The second, a mass sell-off of investment assets as previous investment strategies are no longer viable.
It’s expected that most lenders will follow Macquarie Bank’s example, but some will wait until the changes pass into law.
If you need to adjust your investment strategy, get in touch with the loan experts at It’s Simple today. It’s free and will provide clarity on your financial position and options.