Stamp duty paused in NSW for first home buyers

First home buyers rejoice. Stamp duty - one of the biggest upfront costs and barriers for would-be-buyers in New South Wales - has been temporarily axed for new homes up to $800,000.

Today’s announcement from Premier Gladys Berejikilian comes in an effort to boost housing construction in NSW, and support jobs in the building industry. The changes will apply from August 1st, 2020 and last for 12 months.

RateCity has crunched the numbers and found that for first home buyers, this change may shave over a year off the time it takes to save up a deposit.

What are the new stamp duty rules?

Previously, stamp duty exemptions applied to new homes for first home buyers up to the value of $650,000, with stamp duty concessions available for properties between $650,000 to $800,000.

Current stamp duty concessions

First home purchase price Ordinary stamp duty Savings for first home buyers

of new dwellings*

Savings for first home buyers

of existing dwellings*

$650,000 $24,740 $26,857 $26,857
$700,000 $26,990 $18,786 $18,786
$710,000 $27,440 $17,172 $17,172
$750,000 $29,240 $10,950 $10,950
$775,000 $30,365 $6,922 $6,922
$800,000 $31,490 $2,896 $2,896

Source: NSW Government as of 2017. Notes: *Total of stamp duty exemptions plus first homeowners grant plus savings from LMI duty abolition (Genworth LMI Premium Estimator based on a first home buyer with a $50,000 deposit).

Now, stamp duty exemptions will carry up to the full $800,000 property price, with concessions available up to $1 million.

For vacant land, the stamp duty threshold will increase from $350,000 to $400,000, with concessions up to $500,000.

Also, the $10,000 first homeowners grant will still be available for those buying new properties worth $600,000 and under, or those buying land and building a new property up to $750,000.

Premier Gladys Berejikilian said the government expected “more than 6,000 first home buyers would benefit from the changes” potentially saving them thousands of dollars.

How much could this save first home buyers?

Before August 1, would-be buyers looking to get a property from $650,000 to $800,000 would have still had to pay some stamp duty costs, but they were reduced.

This meant that on an $800,000 property, first home buyers were still expected to save an additional $28,594 for stamp duty on both new and existing dwellings.

Now, these stamp duty exemptions mean for new dwelling purchases, first home buyers can not only potentially pocket that $28,594, but also shave significant time off of how long it takes to save a deposit.

Keeping in mind that these exemptions only apply for the 12 months following August 1, 2020. If borrowers were already close to saving a 20 per cent deposit, here is how much time is saved by not having to save up to pay stamp duty.

Time saved by not saving for stamp duty:

Median House Price Stamp duty concession costs New stamp duty exemption costs Total 20% deposit needed including stamp duty concessions New total 20% deposit needed including stamp duty exemption Time taken to save based on weekly deposit of $400 New time taken to save based on weekly deposit of $400 Time saved with new stamp duty exemptions
$650,000 $0 $0 $130,000 $130,000 5 years 11 months 5 years 11 months /
$700,000 $8,204 $0 $148,204 $140,000 6 years 9 months 6 years 5 months 4 months
$710,000 $10,268 $0 $152,268 $142,000 6 years 11 months 6 years 6 months 5 months
$750,000 $18,290 $0 $168,290 $150,000 7 years 7 months 6 years 10 months 9 months
$775,000 $23,443 $0 $178,443 $155,000 8 years 1 month 7 years 1 month 1 year
$800,000 $28,594 $0 $188,594 $160,000 8 years 6 months 7 years 3 months 1 year 3 months

Source: RateCity.com.au, NSW Government website, NSW State Revenue Stamp Duty Calculator.

Notes: Savings based on deposit of $400 per week into savings account paying 1.50 per cent per annum

Home loan rates for first home buyers

For some borrowers who choose to still save a larger total deposit size by factoring in stamp duty to their savings, this may help them to nab a more competitive interest rate from lenders.

Home loan lenders typically reward borrowers with small LVRs (loan-to-value ratio) with more competitive interest rates, as having a larger chunk of the property’s price paid off upfront presents you as a more reliable borrower.

While no low rates are ever guaranteed, it’s always worth considering making your home loan application look more desirable by saving a larger deposit, if financially possible.

Here are some of the most competitive home loan rates available to first home buyers:

Variable, owner-occupier home loans paying principal and interest

Home loan Advertised rate Comparison rate
Freedom Lend Freedom Variable Home Loan

2.17%

2.17%

Reduce Home Loans Super Saver

2.19%

2.19%

Mortgage House Essentials Low Rate Home Loan

2.34%

2.52%

Source: RateCity.com.au. Data accurate as at 27.07.2020.

Fixed, owner-occupier home loans paying principal and interest

Home loan Advertised rate Comparison rate
Homestar Finance Star Essentials Fixed Home Loan 2 years

2.06%

2.38%

HSBC Premier Fixed Rate Home Loan

2.09%

3.10%

Greater Bank Great Rate Fixed Home Loan

2.09%

3.53%

Source: RateCity.com.au. Data accurate as at 27.07.2020.

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Learn more about home loans

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is an ongoing fee?

Ongoing fees are any regular payments charged by your lender in addition to the interest they apply including annual fees, monthly account keeping fees and offset fees. The average annual fee is close to $200 however there are almost 2,000 home loan products that don’t charge an annual fee at all. There’s plenty of extra costs when you’re buying a home, such as conveyancing, stamp duty, moving costs, so the more fees you can avoid on your home loan, the better. While $200 might not seem like much in the grand scheme of things, it adds up to $6,000 over the life of a 30 year loan – money which would be much better off either reinvested into your home loan or in your back pocket for the next rainy day.

Example: Anna is tossing up between two different mortgage products. Both have the same variable interest rate, but one has a monthly account keeping fee of $20. By picking the loan with no fees, and investing an extra $20 a month into her loan, Josie will end up shaving 6 months off her 30 year loan and saving over $9,000* in interest repayments.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002