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NSW to scrap stamp duty: what this means for first home buyers

NSW to scrap stamp duty: what this means for first home buyers

The New South Wales (NSW) state government is reportedly planning to overhaul stamp duty at its upcoming state budget, and introduce an ongoing land tax as an alternative. So what could this mean for everyone eagerly awaiting a chance to get onto the first rung of the property ladder?

What are the proposed stamp duty changes? 

According to the Sydney Morning Herald (SMH), some home buyers will be able to opt in to an annual land tax rather than an upfront transfer duty (aka stamp duty) payment. This decision would be permanently locked to the property, meaning future owners wouldn’t have the option to switch back to an upfront stamp duty payment, leading to stamp duty being gradually phased out across NSW.

Details of the proposed reforms are set to be revealed with the NSW state budget, though their implementation would reportedly require support from the Australian federal government.

While the exact cost of the tax is not yet known, according to the NSW Shadow Treasurer, a typical family in Sydney will start paying $2,400 each year from next year if this tax is introduced.

What happens when it's time to sell?

It's important to note that while first home buyers may get to sidestep stamp duty by opting for the land tax instead, they may not receive this option if they choose to sell their home and purchase another in the future. This could potentially see some home owners having to weigh up moving house to a property that better suits their changed needs against the potential cost of stamp duty on this second home.  

What could these changes mean for first home buyers in New South Wales? 

While first home buyers in NSW are currently able to claim state government support via the First Home Owner Grant (FHOG) and the First Home Buyers Assistance Scheme, the eligibility criteria for these programs mean not every first home buyer may be able to benefit.

For example, the NSW $10,000 First Home Owner Grant (FHOG) is only available to those purchasing a newly-built house, townhouse, apartment, unit or similar with a purchase price under $600,000, or under $750,000 when purchasing off the plan.

Additionally, NSW first home buyers may be exempt from stamp duty when buying a new or existing home for less than $650,000, and pay a concessional rate of stamp duty when purchasing a new or existing home valued between $650,000 and $800,000.

However, considering that the Sydney median dwelling value at the start of June 2022 was $1,120,836 according to the CoreLogic Hedonic Home Value Index, this could leave already-struggling first home buyers coming up short. As well as saving up a minimum 5 per cent deposit of $56,042, first home buyers would need to also come up with an extra $46,651 for stamp duty on top of this figure.

And that doesn’t even include Lender’s Mortgage Insurance (LMI), which could be around $55,689 for a 5 per cent deposit, though this amount could potentially be capitalised into the loan itself rather than paying it as an upfront cost.

Costs for a First Home Buyer in New South Wales

 Property Value

Stamp Duty 

20% Deposit 

5% Deposit 

LMI on 5% Deposit 

$600,000$0 $120,000 $30,000 $27,132 
$700,000 $10,445 $140,000 $35,000 $31,654 
$800,000 $31,335 $160,000 $40,000 $36,176 
$900,000 $35,835 $180,000 $45,000 $40,698
$1 million$40,335$200,000$50,000$45,220
$1.5 million$67,505$300,000$75,000$74,528
$2 million$95,005$400,000$100,000$99,370

Assumes a first home buyer in New South Wales, purchasing an existing property as an owner occupier. Calculated using RateCity Stamp Duty Calculator and LMI Calculator. Calculations are estimates for illustrative purposes only. 

What could this mean for first home buyers? 

Scrapping stamp duty could potentially remove tens of thousands of dollars from the upfront costs for first home buyers across New South Wales. This means these borrowers could save up the deposit needed to make their purchase much sooner, depending on their saving strategy.  

Previous RateCity research indicates that depositing $200 a week for a 10% deposit on a median dwelling in Sydney without stamp duty could shave five years off the time taken to save.

If you’re considering buying your first home in New South Wales, or anywhere else in Australia, it’s important to compare home loans before signing on the dotted line to ensure that you’re getting a deal that suits your financial situation and personal goals. If you need more help working out the best option for your needs, you could consider contacting a mortgage broker.

Company
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Real Time Rating™

3.93

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2.64

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2.56

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Repayment

$1,367

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3.93

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Company
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Interest Rate

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3.67

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2.60

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2.96

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$1,423

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3.67

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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