6 Questions for First-Home Buyers

Purchasing a home in Australia can be a complex process, and can be one of the biggest, and most daunting, purchases you’ll make. Whilst it is easy for a first-home buyer to feel overwhelmed by the choices and decisions needing to be made, it’s important to understand the various elements and concepts of what is required of you as a buyer.

We often get asked, “How much can I afford to pay?”, “What are the extra hidden costs?”, and, “What grants am I eligible for?”. That’s why our Experts at Vision Property and Finance have broken down the ins and outs of the schemes available to first-home buyers, and what questions they need to consider before purchasing their first home.

1) What schemes are available to me?

In NSW there are currently 4 schemes and grants that can help you purchase your first home. Each has their own specific benefits and targeted markets.

  1. First Home Owners Grant (FHOG)
  2. First Home Buyers Grant (FHBG)
  3. First Home Low Deposit Scheme (FHLDS)
  4. First Home Buyers Choice (FHBC)

First Home Owners Grant

If you are purchasing or building a brand new house that has not been lived in, then you are eligible for the First Home Owners Grant. The NSW government will put $10,000 towards the purchase price of any eligible property, capped at a maximum property value of $750,000. Your first new home can be a house, townhouse, apartment, or a unit that is newly built, purchased off the plan, or substantially renovated. If you would like information on other states or territories, please contact us for help.

To be eligible for the First Home Owners Grant, you, or you and your partner, must not have previously owned land or property in Australia, must occupy your first home as your principle place of residence within 12 months of the construction or purchase of your home, and live in the property for a minimum of 6 continuous months.

First Home Buyers Grant

The First Home Buyers Grant is a national scheme that provides financial benefits to first-home buyers. This scheme assists buyers who may have minimal funds for a 20% deposit, and instead, allows eligible first-home buyers to purchase a new or existing property with a deposit of just 5%.

The First Home Buyers Grant is a one-off payment to cover some or all of the stamp duty that would normally apply. In NSW, on a new home the Stamp Duty saving could be as high as $31,398 or on an existing $650,000 property the saving is $24,340. In other states the saving level will be different. To apply for the First Home Buyers Grant you must move into the purchased property within 12 months and live in it for 6 months consecutively. You, or you and your partner, must also have not previously owned land or property in Australia, and it cannot have a value greater than $800,000.

First Home Low Deposit Scheme

Additionally, the First Home Low Deposit Scheme allows eligible first-home buyers to avoid paying tens of thousands of dollars in Lenders Mortgage Insurance (LMI) as long as they meet the criteria which is based on suburb, purchase price and household income levels. LMI is a one-off premium added to your home loan, which protects the lender if you default on your home loan. It is quite tricky understanding this process, however, at Vision we will explain how it might benefit you.

First Home Buyers Choice

Within the last few months, there has been an announcement of a new scheme called First Home Buyers Choice. This scheme will give borrowers that are purchasing a new or existing home above $600,000 and below $1.5 million the option to either pay stamp duty or pay an annual property tax.

What this means is that first-home buyers can either pay a lump-sum stamp duty payment at the beginning of their loan or pay an annual property tax of $400 plus 0.3% of their property’s land value. For now, this scheme is strict to NSW alone and will begin on the 16th of January 2023, allowing first-home buyers from the 12th of November to opt-in for any stamp duty paid to be refunded.

This scheme aims to reduce the cost of entering the property market by reducing the initial stamp duty costs which further helps buyers who have a smaller deposit amount available.

2) So, what is stamp duty and how much is it?

Stamp duty, also known as transfer duty, is a tax put in place by State governments on purchases of land or property. How much you must pay will vary from property to property, depending on the price, location, and other factors. Therefore, stamp duty can often hurt first-home buyers from getting into the market, as it can increase the up-front costs of initial property purchases. If you are a first-home buyer over the age of 18 then you may be eligible for stamp duty exemption.

3) Am I better off paying stamp duty or a property tax?

Property tax is a tax paid on property that is owned by an individual or entity, and as opposed to stamp duty, is a smaller amount as it is based off the value of the land. As mentioned earlier, property tax can be calculated as 0.3% of the land value including a $400 annual fee. Note that these numbers are based off NSW government calculations and will vary depending on the state or territory.

Typically, in regards to property tax, it is more affordable when purchasing a property over the short-term. The First Home Buyer Choice is aimed towards buyers who are looking to purchase and sell a property within a typical 30-year loan term. Over 30 years, property tax will typically cost you more than an upfront stamp duty payment.

It is also essential to consider how long you are planning to occupy a home. Typically, the average time that an Australian owns a home in NSW is 10.5 years, although first-home buyers usually keep them for a little bit longer.

4) What pros and cons should I consider?

The First Home Buyer Choice is attempting to make home ownership more achievable for first-home buyers. The First Home Buyer Choice aims to reduce the time it takes to save for a deposit and putting the keys in the hands of new homeowners sooner.

Whilst there are no negative effects that come from using First Home Buyers Schemes, not all will be of benefit to a single first-home buyer. The government puts these schemes into place to encourage younger Australians to take a step into the property market, but first-home buyers need to consider their own individual circumstances.

Additionally, NSW has a First Home Buyer Choice calculator which helps first-home buyers decide which pathway to home ownership best suits their financial circumstances and personal goals. Whilst this calculator only provides first-home buyers with a brief outlook on what is eligible to them, speaking with an Experienced Mortgage Broker is the most sufficient and suitable step for first-home buyers to understand what options are available. At Vision, our Experienced Mortgage Brokers are dedicated to providing the best solutions for you and are committed to guiding first-home buyers through the loan application process.

5) So, what is the difference between stamp duty and property tax?

Lets look at an example. A first-home buyer is buying their first-home in Sydney for $830,000 with a land value of $265,000. They can choose between the upfront stamp duty of $32,440 or an annual property tax of a calculated amount of $1,195.

Property tax calculated:

  1. Firstly, the property tax is calculated at 0.3% of the property’s value. 0.3% of $265,000 = $795
  2. Then, property tax is the sum of $400 plus the 0.3% of the property’s land value. $795 + $400 = $1,195
  3. Assuming this first-home buyer is purchasing their home on a 30-year loan term, the property tax is multiplied by 30 years.

$1,195 by a 30-year loan term = $35,850

Therefore, the property tax is equal to $35,850 and the stamp duty cost is $32,440.

There is a slight variance between the two options, considering that the property value can be a lot higher or lower than the example given.

6) Can Vision help me as a first-home buyer?

At Vision, we understand that everyone’s circumstances are different and are prepared to spend the time with you to get it right. We recommend reaching out to us early in your journey and allow us to both provide the right information as well as deal with the complex processes that you may experience as a first-home buyer. Vision Property and Finance have provided hundreds of clients with award-winning property financial services. Get in touch with us today!

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