In an environment where interest rates are on the rise, conversations with most property investors have shifted from purchasing to refinancing and improving their debt position. However, for those still wanting to enter the market there is some good news despite the increasing interest rates.
Why? Firstly, Sydney’s price growth has stalled since the peak median house price hit in December 2021 at $1.4million. The sky-rocketing prices of the pandemic era were problematic for first home buyers and for affordability on all levels. So, it’s no surprise that the market cooling has come as a relief to those wanting to enter the market for the first time.
Secondly, the NSW Government has introduced the First Home Buyer Choice scheme. The scheme allows eligible buyers to choose between an upfront payment, or a smaller annual property tax. This is great news for buyers, most often the younger generation, looking to get in the market for the first time. The scheme allows you to purchase your new home sooner, pay down your mortgage quicker, reduce your mortgage insurance and ultimately get a better interest rate – all because the government has removed the need to pay upfront and sometimes crippling stamp duty costs.
Here’s a quick summary of the First Home Buyer Choice scheme:
–You can buy up to $1.5million of property and choose not to pay stamp duty but pay land tax every year
–First home buyers who opt in will pay an annual levy of $400 and a 0.3 per cent tax on the value of their land
–Eligible first-home buyers will be able to opt in from January 16, 2023
–If you buy in the remainder of 2022 your stamp duty will be reimbursed in 2023
The scheme has also reduced the savings journey for some by almost two years, presenting a great opportunity to enter the market sooner. First home buyers with higher dual incomes are now in a great position to be buying in the $800,000 to $1.5million mark. They can service a loan at this price point, but they can now use the stamp duty savings to access a better interest rate and mortgage insurance premium too.
Even as a first home buyer, in the current climate it’s important to think like an investor. Let me explain. Typically, you need to make sure you’re getting a 7 percent return on your money to cover all stamp duty, legal and other fees – but with the introduction of this new scheme, buyers are now looking to only cover 2% because those upfront costs have been removed. And that changes things!
If you do the math on a $1.5million purchase, this new scheme will benefit you for up to seven years before the annual fee starts eating into your return on investment. The scheme incentivises first home buyers to purchase sooner but it also encourages them to trade sooner. These are all things you need to consider when entering the market.
Current ‘rentvest’ trends (renting while buying an investment property elsewhere), encourage buyers to get into the market where they can afford to service the loan. Now with the introduction of new legislation and a changing market the question becomes why are you buying? Is it to live in or to invest? Remember whatever gain you make on your own home is tax free, unlike an investment property. If you can afford the deposit on a home you wish to live in, you should take the opportunity. Your overall tax position is another thing to consider when entering the market.
Ultimately, this new legislation is lowering the hurdles for first home buyers, making home ownership a reality for more people sooner. I believe this scheme will also help increase returns and increase movement in the market.
You can read more about the scheme here:First Home Buyer Choice.
Talk to Matt if you would like any lending advice.
Matt Clayton
Mortgage Advisor
Loan Market Lower North Shore
0414 877 333
Book an appointment
Escalation in the Middle East, the war in Ukraine, a US election around the corner, and a softer economy in China all have consequences for Australian property. The uncertainty on each of these issues is enough to impact our real estate market, but all four at once produce a veritable … Read more
As Sydney’s Lower North Shore prestige property market continues to evolve, understanding its key trends and both global and domestic economic drivers is crucial for buyers, owners, investors and industry professionals. Join us for an insightful evening where industry experts will dissect the dynamics shaping one of Sydney’s most sought-after … Read more