Over the weekend Victorian Premier Daniel Andrews announced First Home Buyers purchasing property under $600,000.00 after July 1st will no longer have to fork out for stamp duty.
Hmm yes.. Stamp duty
You may have heard the term ‘stamp duty’ in passing or have a loose understanding of what it is exactly, so let’s clarify its meaning and purpose before exploring the changes.
What is it?
Put simply, stamp duty is a tax paid by property purchasers and collected by all Australian territories and states.
The stamp duty amount is determined by the property purchase price, location and loan purpose and must be paid within 30 days of settlement.
What’s it used for?
This tax is generally injected into each states government budgets to go towards health, transport and roads, police, justice and emergency services.
What’s the situation right now?
At present, Victorians who buy their first residential property for under $600,000 get a 50 per cent stamp duty discount if they live in it for at least 12 months. A $10,000 first-home owner grant is also available for those who buy a newly constructed property, also under $600,000.
Now we have the basics established, what do these changes mean for first home buyers?
The stamp duty exemption will apply to new and existing homes (including houses, townhouses, apartments and off-the-plan dwellings) that cost under $600,000 and are lived in for at least 12 months. Investment properties are not eligible. First home purchases ranging between $600,000 and $750,000 will also be eligible for a concession applied on a sliding scale basis.
Basically, a first home buyer purchasing an established home worth $600,000 will no longer have to pay the $15,535 stamp duty that currently applies. A property worth $450,000 will have the $9,485 stamp duty waived etc etc. You get the idea!
There’s further good news for rural property purchasers! Andrews also doubled the First Home Buyers Grant from $10k to $20k in a bid to encourage young purchasers to build new homes in regional Victoria.
The contentious changes come as the issue – popularly referred to as the ‘housing affordability crisis’, hits new extremes with a booming property market taking off for another year. We see first home buyers struggling to get a foot in the door (pun certainly intended) due to rising property prices, competition from investors and federal government policies that benefit existing owners.
While this move by Andrews is intended to be the answer to a generational problem, for us it just raises more questions. A few that come to mind include:
- Will this move just inject $15k of capital growth into the sub $600k market?
- Who stands to gain the most from an increase in property prices?
- With Melbourne’s median house price now at a record $795,447, will home ownership remain out of reach for most?
How do current financial conditions fit in with all of this?
- Lenders continue to tighten their policies around how much and who they will lend to
- You may no longer be required to fork out $15,535 in stamp duty to purchase a $600k property, but how much are you actually able to borrow in the first place?
- We will continue to see changes to lending conditions, especially to investors as a result of APRA (Australian Prudential Regulation Authority – Regulator of banks in Aus) applying more and more pressure on banks.
Are there any other options available to a First Home buyer?
Yes there is. For those who have family in a favourable financial position, you may opt to leverage off of their existing equity in the form of a Guarantor Loan. This method is becoming increasingly popular as some parents sit on a healthy amount of equity after decades of capital growth. Entourage Finance have arranged countless guarantor loans and through this experience have it down to a fine art.
If you wish to learn more about what options are available to you or you just want to discuss your existing financial situation and formulate a strategy, get in touch with us now and we can form a 1 year – 3 year plan on paper and execute it together.
– Brett Gavaghan, Operation Director