June 2023 UPDATE: What Do The Latest Stamp Duty Changes Mean For First-Time Homebuyers?

Stamp duty is an expense home buyers must pay whenever they purchase a property, often costing tens of thousands of dollars on top of their initial deposit.

Towards the end of 2022, the New South Wales government is set to make it a bit easier for first-time buyers to cover this cost by offering them a choice: pay it upfront or as an annual tax. 

Not a year later, the newly-elected NSW Labour government abolished this choice in favour of increased exemptions. 

So, let’s first find out what these changes mean for you. 

A Brief History of Stamp Duty in NSW

First introduced in Sydney in 1865, stamp duty (or transfer duty) is a tax paid to specific states or territories to transfer property from the buyer to the seller. 

Stamp duty prices and rates differ from state to state, with each respective government able to decide the rates, price brackets, and relevant exemptions. But generally, stamp duty is calculated as a percentage of the sales price, which will change depending on the property’s location. 

Stamp duty has long been considered hugely inflated, which is a big reason behind many people’s inability to become property owners.

For example, before these changes, if you were looking to purchase a New South Wales property for $800,000, your calculated stamp duty would be approximately $31,090. This fee is on top of your deposit. 

If you had a 20% deposit of $160,000, you’d be looking at paying an upfront total of $191,090. And that’s if you’ve got 20% or more of a deposit. 

If it’s any less than 20%, you’ll also likely need to pay lender’s mortgage insurance (LMI), which could be anywhere up to $20,000 on an $800,000 property – this is unless you opt to use First Home Grant Scheme

Those with only a 10% deposit, LMI, and stamp duty would be looking at paying an upfront cost of around $130,000.

It’s no surprise that stamp duty for first home buyers has been a hurdle for many, so the Liberal Government introduced the First Home Buyers Choice towards the end of 2022. 

How Did the First Home Buyer’s Choice Work?

The First Home Buyer’s Choice sought to do exactly what it suggests: give new property buyers the option to pay the stamp duty upfront or as an annual tax. 

So, starting January 16, 2023, if you purchased a property, you could pay your stamp duty at an annual rate of $400 plus an annual rate of 0.3% of the unimproved value of your property’s vacant land. 

The unimproved value of your land is essentially what the vacant land is worth (i.e. without factoring in any structures built on it). 

If you purchased the $800,000 property we discussed earlier, that would mean you could avoid having to pay the $31,090 upfront and instead make annual payments of: 

$400+ [$230,000 (unimproved land value) x 0.3%] = $1,090

However, with the recent NSW government election seeing the Labor party win enough seats to form a government, Perrotet’s plans for stamp duty reform under the First Home Buyer Choice Scheme will no longer go ahead.

Instead, the Labor party will move ahead with their plan to expand the stamp duty exemptions. 

What Does This Mean For First Homebuyers Who Have to Pay Stamp Duty? 

For those who opted in for the annual land tax option, your stamp duty payable will continue to operate as an annual property tax. 

However, for those who purchase their properties after July 1, 2023, you will no longer have a choice between a lump sum or an annual payment. Instead, you will pay transfer duty when the residential property is transferred – as it was before. 

But, remember, as a first-time buyer, you can access various stamp duty exemptions, which will now cover a wider range of properties, thanks to the threshold increase. 

Starting the new financial year, the current exemption threshold of $650,000 will increase to $800,00. This means that if you’re an eligible first-time buyer and you buy a property valued at less than $800,000, you will be exempt from paying stamp duty on the transaction. 

A stamp duty concession will also apply to properties between $800,000 and $1 million. 

To be eligible, you’ll need to meet some other criteria, too, such as 

• The home you’re purchasing must be their Principal Place of Residence (PPOR)
• The owner/s must move into the property within 12 months of purchasing, and
• They must live there for at least one year (previously only 6 months). 

Using a NSW Stamp Duty Calculator

Now that you’ll likely have to pay stamp duty on your first property transaction (unless you’re eligible for an exemption), it’s worth preparing so the bill doesn’t surprise you when it comes time to transfer the property title. 

We have a FREE stamp duty calculator that you can use to help you calculate stamp duty and budget for your next property purchase. 

Key Takeaways

The recent changes in NSW stamp duty regulations carry significant implications for first-time homebuyers. 

While the abolished First Home Buyers Choice Scheme, which offered flexibility in paying stamp duty upfront or annually, may disappoint some, the newly elected Labor government is providing substantial relief through expanded stamp duty exemptions. 

Starting in the new financial year, the exemption threshold will rise from $650,000 to $800,000, making a larger spectrum of properties available to first-time buyers without the burden of stamp duty. Concessions will also apply to properties between $800,000 and $1 million.

However, prospective buyers must meet certain eligibility criteria, such as occupying the property as their principal residence.

In this ever-changing property landscape, first-time buyers must stay informed about these changes to make financially sound decisions in their property journey.

If you need assistance finding the right home loan to help you kickstart your property journey, contact the Mortgage Agency today.