What Should First Home Buyers do in the Current Lending Climate
First home buyers in NSW have been faced with an interesting choice this year. Should they pay stamp duty upfront as everyone has been doing until now? Or do they opt for an annual land tax as a replacement for that upfront cost?
Supporters of the annual tax argue that it helps buyers overcome one of the main hurdles that had been keeping them out of the market, the prohibitive upfront cost of purchasing.
Until now buyers had to save a deposit of hundreds of thousands of dollars in a historically low interest rate environment and then save another $50,000 plus on top of that to be able to pay the tax man. Removing that upfront $50,000 means getting into the market sooner.
Those opposed to the scheme say that paying annual tax for the life of your ownership of the property means you pay a greater amount than the stamp duty you would have paid upfront and that your annual land tax would increase with the value of your land.
How long will you hold?
Property data shows most Aussies hold their properties between 8 and 12 years on average, before selling to upgrade or downsize. And that’s all homes.
First home buyers are at the lower end of this range and bring the averages down. Most hold between 5 to 8 years before they look to upgrade to expand a family or make the most of career progression.
It would take more than twice that period of time for the annual land tax they paid to get up to what they would have paid in upfront stamp duty. Put simply, the vast majority of first home buyers taking up the annual payment scheme would save significant money compared to those who paid upfront.
What about investors?
The scheme doesn’t apply to investors, only owner occupiers, which means that seasoned B Invested clients won’t need to make this choice unless further reform takes place in the future.
However, a first home buyer who is thinking savvily about their future may be wanting to purchase an investment property soon after getting into their owner-occupier.
If that’s the case, think about what else you could do with that $50,000 in stamp duty money now that could boost your future success.
That amount of money will get you a deposit on an investment property in plenty of places around Australia at the moment. You could invest it and double it in equity in a relatively short period. All of sudden you’ve leveraged into future growth and rental income too. Sounds like a better option than just giving it away in stamp duty.
Of course, everyone’s situation is different, but food for thought will help you make the right decision about what to do with your money when purchasing a first home.