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Last week’s NSW budget announcement left first home buyers across the state feeling good about the future, but will the proposed reform to stamp duty really make property more affordable? And what opportunities will this create for mortgage brokers? MPA spoke with Finance Made Easy director Tony Bice, MoneyQuest finance specialist Paul Wright and author of Positively Geared Lloyd Edge about the ways the reform could shape the market and why choice will be a key ingredient for success.
No more stamp duty
Stamp duty could well be a thing of the past for NSW home buyers come mid 2021 if the proposed reform is passed – but this may not translate into real savings for many.
Read more: Plan to wipe out stamp duty could boost economy by $11bn
Sydney-based financial planner and mortgage broker Tony Bice said while the change to stamp duty would save countless first home buyers on upfront costs, it wouldn’t work in the favour of upsizers who wanted to stay put over the long term. Modelling has showed that after paying the proposed annual property tax for 10 years, the overall cost would likely start to exceed what would have been a one-off payment at the time of purchase.
Those buying their “forever home” will thus stand to lose from the change – which is why the success of the new scheme will come down to having choice, he said.
But this is a choice that first-home buyers in the harbour city will be sure to appreciate, he added.
“If we want to kick-start the economy, the choice that the majority of first home buyers are going to want is to delay the payment,” said Bice.
A Sydney buyer purchasing a two-bedroom apartment in the inner-west suburb of Ashfield, would need a deposit of about $145,000 in order to avoid LMI, based on the median price of $712,000.
According to Your Mortgage, the stamp duty payable on a property of this size is about $27,800; meaning the buyer would need well over $172,000 in order to finance the deal.
While some first-home buyers may be eligible for a reduction or exemption under the current scheme, many of those buying an existing property in Sydney could potentially save thousands upfront if they elected to pay an annual property tax instead.
“The implementation of a property tax will allow more people access to buying a home by easing the total amount that they have to save, as well as allowing them to borrow a higher amount,” he said. “The relief that the proposed property tax will bring can’t be underestimated – right now we need everything that we can to assist in kickstarting the economy.”
Lifting the reluctance to sell
Wollongong broker Paul Wright agreed that the proposed Stamp Duty reform would help first home buyers get into the Illawarra property market, adding that upgraders and downsizers could also benefit.
“With upgraders, I think sometimes there is a reluctance to sell and then buy because of the changeover cost,” he said.
“When you think about it, if you’re upgrading from a $800,000-$1 million property to even a $1.1 million-$1.2 million property, you’re looking at changeover costs that are somewhere in the vicinity of $60,000-$70,000, if you factor in real estate, stamp duty and legal fees.
“People tend to gravitate towards the renovation side, so it will be interesting to see whether that changes that.”
The reform could also benefit investors in the Gong, who may not need as much equity in their PPOR in order to buy their first investment property. This lessened upfront cost could result in more speculation and rising property prices.
He agreed with Bice that choice will be an important part of the reform.
“What’s it going to do for those who are not in as strong a position?” he said. “For a pensioner that wants to downsize – if they’ve got to pay an annual property tax, are they going to be able to afford it? Having both options available is going to be an important part of it.”
Instability in the property market
Buyer’s agent and author of Positively Geared Lloyd Edge said the reform could cause instability in the NSW property market over the short term until the details of the arrangement are finalised.
“Over the longer term, prices may be affected by an ongoing land tax which is levied annually,” he said. “It may mean more first home buyers will enter the market – as one of the larger restraints to entering the property market for first home buyers is often needing that upfront stamp duty on top of the deposit they have saved.”
This could result in a surge in property values within the lower priced Sydney markets in particular, he said.
“Stamp duty has often caused distortions in buying and selling decisions because of these large upfront costs,” he said. “I believe this will create some great opportunities for brokers as there will be more buyers entering the markets and looking for loans.”
Read next: Government’s home equity plans could have big repercussions
Wright agreed, explaining the reform will be another value-add to the broker proposition.
“The more complexity comes into the buying process, the more valuable brokers become,” he said.
Brokers will be able to educate borrowers on the different options available and whether they fit in with their goals and objectives, he explained.
For Bice, the reform is something that every broker should get across once the finer details have been agreed on.
“Stamp duty is going to be the conversation on every borrower’s mind,” he said. “These proposed changes are going to open up a whole stack of enquiry and activity and brokers will reap the rewards by being able to offer clients options that, up until now, haven’t been available.”
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