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First home buyers in Canberra - using deferred stamp duty to get ahead

Discussion in 'Property Finance' started by Jamie Moore, 14th Sep, 2016.

  1. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    18th Jun, 2015
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    Location:
    Canberra and Sydney
    Hey PC peeps

    I've prepared this little post for first home buyers in Canberra who have a relatively small deposit for their first home.

    Did you know that it's possible to purchase a $450k home in Canberra with as little as $29k savings? I’m not talking about new homes either – I’m talking about established properties.

    I recently helped a young couple purchase their first home in Canberra with a relatively small deposit. With $29k in the bank - they were able to get approval for a $450k purchase.

    How is this possible? It’s made possible due to the ACT Government allowing some First Home Buyers to defer the payment of stamp duty. Instead of paying it upfront – they give you 10 years to pay it back in instalments at a low interest rate.

    Traditionally, when purchasing a home you need to show the bank that you’ve saved (in general) at least a 6% deposit and have enough funds to cover the purchase costs such as stamp duty (which is around the $13k mark for a $450k purchase in Canberra), legal and other miscellaneous fees at settlement which generally amount to around $2k. So for a $450k purchase in the ACT – you’d need to have:

    - 6% deposit = $27k

    - Legal/misc settlement fees = $2k

    - Stamp duty = $13k

    Total minimum funds required for a $450k purchase are $42k

    However – if you’re eligible to defer the stamp duty - for a $450k purchase in Canberra – you’d need to have:

    - 6% deposit = $27k

    - Legal/misc settlement fees = $2k

    - Stamp duty = $0

    Total funds required for a $450k purchase are now $29k

    The benefit to First Home Buyers in this instance is that they only need to demonstrate that they’ve saved their 6% deposit (a 5% deposit could be possible depending on the purchase price of the property) and have another $2k or so to cover legal and other settlement fees. So long story short – they can purchase their first home with fewer savings than is usually required.

    The other great thing with the deferral of stamp duty is that it applies to established homes - which is a refreshing change as most home buyer incentives today are geared towards new properties.

    Which banks are ok with this?
    Not all banks are willing to lend in this scenario. However - we do have a relationship with a couple of lenders that will acknowledge the fact that you’re able to defer stamp duty.

    These lenders will provide a loan that is around 94% of the property’s value and then add the Lenders Mortgage Insurance on top. In the example I used above – the Lenders Mortgage Insurance was $11k and was added on top of the loan. So for a $450k property with $29k saved – we were able to get the bank to provide a loan of $423k and the $11k LMI fee was added on top of the loan to bring the total loan amount to $434k which is almost 97% of the property’s value.

    Who qualifies for deferred stamp duty?
    To qualify for deferred stamp duty the applicants need to qualify for either the ACT First Home Owners Grant or the Home Buyers Concession Scheme and the property purchase price must be below the upper property threshold under the Home Buyer Concession Scheme (currently at $562k as of 25/05/2016). The ACT revenue office reviews this threshold twice a year.

    There is more information available on the ACT revenue office website - Home Buyer Concession - ACT Revenue Office

    Please also don’t assume you will qualify for deferred stamp duty. Governments change eligibility criteria and incentive programs all the time – so while this information is relevant as of May 2016 – it is likely to change in the future. Please discuss your matter with us – or call the state revenue office to check that you qualify - (02) 6207 0028

    Issues to consider with deferring stamp duty
    There are a few things to consider when deferring stamp duty.

    Lenders Mortgage Insurance is expensive. It goes without saying – nobody likes paying for an insurance premium that protects the bank and not the borrower. With this insurance – the smaller your deposit the higher the insurance premium you have to pay. Having said that – paying Lenders Mortgage Insurance does enable you to purchase your first home sooner rather than later.

    Also - I wouldn’t recommend using ALL of your savings towards your first purchase. You don’t want to settle on your first home without any money in the bank. It’s important to maintain a savings buffer for emergencies.

    Lastly - keep in mind that there’s no free lunch when it comes to deferring duty – not only will you have to pay it back over 10 years but the Government will charge a small amount of interest as well.

    All in all – I see deferred stamp duty as being a handy way for first home buyers in Canberra to get into the market sooner. It’s just important that you budget for your future mortgage repayments as well as the deferred duty payments – and have some money left over in savings for a buffer.

    Cheers

    Jamie
     
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  2. SK Investments

    SK Investments Well-Known Member

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    Wherever the wind takes me, currently Brisbane
    Hi Jamie, I just read this post on your Blog. Timing was perfect as I wouldn't have known otherwise.
    My GF will be asking you about this tomorrow with her finance app.

    Although no stamp duty on existing houses for first home buyers would be better, this is a great compromise from the ACT Gov.

    Cheers.
     
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  3. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Perth
    Great info @Jamie Moore. That should be rolled out Auswide.

    In WA purchase of 430k or less for FHB on established property is 100% exempt and pro rata to 530k so something similar can be arranged and most banks will accept.

    Got a deal in the system for a 95% LVR at the moment on a 430k purchase where the young couple had no deposit and we have used gifted funds from a parent as the non genuine savings requirement is waived as they are renting via a REA with good conduct.

    The options are out there :)
     
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  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Ahhhhh! Now it all makes sense - now I realise who your GF is :) Thanks for the recommendation. I'll be working on her file today.

    Cheers

    Jamie
     
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  5. jay.

    jay. Active Member

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    Canberra
    So... what's the rate?
     
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
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    Posts:
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    Location:
    Canberra and Sydney
    should be on their website - dig around and you'll find the up to date info

    Cheers

    Jamie