New changes to NSW stamp duty help first home buyers
In July, the NSW government announced a temporary boost for first home buyers in the form of an increased threshold for stamp duty concessions.
The new thresholds mean that more first home buyers purchasing newly built homes or vacant land will be able to pay less on stamp duty or avoid it entirely.
Here's an example: If a resident of NSW was purchasing a property for $750,000 without any concessions or exemption, the stamp duty would cost around $29,000. If eligible for an exemption they pay nothing.
That's pretty easy maths and it's great news for buyers who fit the eligibility criteria. Stamp duty is often the biggest home buying expense after the deposit.
While these changes are welcome news for first home buyers, the thresholds and eligibility criteria are specific and don't apply to every buyer.
It's also important to note at the time of writing that these changes, while announced, are currently being debated in parliament before being passed. According to Revenue NSW, "the changes to transfer (stamp) duty will start from 1 August 2020", once they are passed.
Let's break down who will benefit from these stamp duty changes, who won't and how these savings can work with other government schemes to provide significant savings for first home buyers who meet all the requirements.
What are the NSW stamp duty changes?
From August 1, 2020, the NSW government won't charge stamp duty to first home buyers purchasing a new home valued at $800,000 or less. Concessions (that is, discounts) on stamp duty apply on properties valued at up to $1 million.
This increase is above the previous $650,000 threshold, which now only applies to first home buyers purchasing existing homes.
In short, the NSW government is now distinguishing between first home buyers purchasing a brand new home and those buying an existing home. If you're buying an existing home valued at $800,000 you have to pay stamp duty. And this will cost you around $31,000. That's a lot of money.
Rules for vacant land purchases have changed too. For first home buyers purchasing vacant land, the exemption threshold for stamp duty rises from $350,000 to $400,000. Above that, there are stamp duty discounts up to land valued at $500,000.
These changes are temporary and are scheduled to expire after 12 months. Although the government could, theoretically, extend them further at a later date.
Who benefits from these stamp duty changes?
The changes will obviously benefit first home buyers looking to buy off-the-plan properties. It's especially beneficial for buyers who are looking at purchasing slightly more expensive properties.
If you bought a new $800,000 property before these changes you'd be looking at more than $31,000 in stamp duty.
If you're purchasing a new property worth $600,000 you'd already be getting the stamp duty exemption.
Who misses out?
People purchasing existing properties are the ones missing out here. First home buyers looking at buying homes that aren't newly built can only avoid stamp duty if the property is valued at $650,000 or less.
And given that the median Sydney property price in July was $866,110 (according to CoreLogic's Home Value Index), that means quite a few buyers will miss out, especially in more expensive parts of the state.
More help for first home buyers
Even if you don't qualify for greater stamp duty savings there are other government schemes available.
If you're a first home buyer in NSW and you're buying a new first home worth up to $600,000, you can get a $10,000 First Home Owner Grant. You'll also avoid paying stamp duty completely. This is a pre-existing home buyer support policy and isn't affected by the new changes.
At the federal level, the First Home Loan Deposit Scheme offers a limited number of buyers the chance to secure a property with just a 5% deposit while avoiding lenders mortgage insurance (LMI).
If you were buying a new first home in NSW valued at $700,000 (the price threshold for the deposit scheme) you could potentially get it with just a 5% deposit, borrow the rest with a low deposit home loan, avoid stamp duty completely and also avoid the costly LMI premium.
That would save you a lot of money. According to Genworth's LMI premium estimator the mortgage insurance premium in this scenario would cost you $27,000.
The stamp duty savings from the NSW government's higher thresholds would save you $10,445 in stamp duty costs too.
All told, a lucky first home buyer in NSW could save more than $37,000 in premiums and tax.
And then there's also the new federal HomeBuilder grant, which gives eligible builders of new homes a $25,000 cash grant.
This grant applies to newly built homes valued at up to $750,000 and is designed to complement the other schemes. If you meet the income threshold and other eligibility requirements you could potentially get the $25,000 HomeBuilder grant and the $10,000 First Home Owner Grant while avoiding stamp duty.
Whatever your situation is and whatever state or territory you live in, it's always wise to check what government support options are available. Concessions, exemptions and grants can save you thousands and even net you some extra cash you can use towards your deposit.