Stamp Duty Changes for First Home Buyers

For first home buyers, stamp duty has traditionally made it significantly harder to get into the property market. It typically added tens of thousands of dollars to their purchase costs, which had to be paid upfront. The extra savings required also tended to delay their purchasing plans by at least a few years.

Acknowledging this, the NSW Government recently introduced stamp duty changes for first home buyers to make the market more accessible. The new arrangements, known as “First Home Buyer Choice”, came into effect on 16 January 2023. Here, we take a closer look at what they are and how they impact both first home buyers and sellers.

What is First Home Buyer Choice?

The recent stamp duty changes give first home buyers options on how and when they pay. If they want, they can continue to pay the total stamp duty amount at the time of purchase. Or, as an alternative, they can now choose to pay a smaller amount each year as an annual property tax.

This allows eligible buyers to pick the payment structure that best suits their situation and long-term plans. It also effectively lowers the cost of entry, which should enable buyers to get into the market sooner. That being said, there are a few important points to note about the annual property tax:

  • To be eligible for this option, first home buyers must be over 18 and an Australian citizen or permanent resident. They must also move into the property within 12 months and live in it for at least 6 months.
  • This option only applies to properties bought for up to $1.5 million. First home buyers paying under $650,000 are also still able to apply to have their full stamp duty amount waived.
  • The annual tax amount will be $400 plus 0.3% of the land value when the buyer lives in the property. If the property is used as an investment, this increases to $1,500 plus 1.1% of the land value.

What does this mean in practice?

The most obvious impact of these stamp duty changes for first home buyers is the potential financial benefits they provide. For those struggling with their deposit, being able to defer payment significantly lowers the amount they need to save. Depending on their situation and plans, the annual tax option could also save them thousands over the long term.

For example, say a first home buyer purchased an inner city apartment for $750,000 with a land value of $270,000. At this price point, they would be eligible for the concessional stamp duty amount, which would be $20,727. Alternatively, they could choose to pay the annual property tax, which would be a yearly payment of $1,210.

It’s worth noting that, in NSW, the average time a homeowner holds onto a property is just over 10 years. This means that, for many first home buyers, opting to make yearly payments could be the cheaper choice. For these people, even if the rate increases in the future, the annual tax should be the more affordable option.

That being said, statistics show that first home buyers tend to stay in place a little longer than other buyers. As such, the best option – at least financially and over the long term – will vary from buyer to buyer. As such, we strongly recommend first home buyers seek independent advice about the approach that best suits them.

On a more practical level, not paying stamp duty upfront should help lower the savings first home buyers require. This should make it quicker and easier for them to get together their deposit and be ready to buy. In fact, for the average first home buyer, these stamp duty changes should shave two years off their saving timeline.

While mostly targeted at first home buyers, these stamp duty changes are also likely to have some impact on sellers. Most significantly, many experts believe they could help boost property prices, at least in the short term. This is because some buyers can now put more of their savings toward the purchase price, effectively boosting their budget.

Also, as the annual tax option only applies to properties bought for under $1.5m, this could become a price ceiling. If first home buyers go over this amount, they will have to pay stamp duty upfront, significantly increasing purchasing costs. First home buyers have until the 30 June 2023 to take advantage of this offer, as the new NSW Labour Government plans to make changes to this stamp duty reform. This is something to keep in mind, particularly if you are considering listing your property for around this amount.

Want to discuss this further?

If you would like more details on the recent stamp duty changes for first home buyers, call Local Agency Co. We can help you understand how the new arrangements work and the main impacts they will have on you. We can also help you assess your situation and make sure you are getting the full benefit from these changes.


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