The First Home Owner Grant vs stamp duty exemption: Are you better off buying before or after July?
In the 2018-2019 budget, Chief Minister Andrew Barr announced some big changes to the Canberra property market: the end of stamp duty for first home buyers and the termination of the First Home Owner Grant. This is a huge deal and here at Independent we have been thinking long and hard about the sort of impact these upcoming changes might have on those looking to purchase their first home in the ACT.
Most media outlets and articles covering these upcoming changes have labelled them as largely positive, with some even going as far as suggesting 2019 could be the year of the first homebuyer in the ACT.
But here’s the thing: those seeking to buy their first home aren’t some sort of uniform hive-mind.
Every first home buyer is a real, complicated person with their own needs, wants, lifestyle and financial limitations. Treating them all as one group seems a bit naïve if you ask us.
So, instead of declaring the change the best thing for new home buyers since sliced bread we thought we would break down the facts so you can make you own mind up about how you can best take advantage of these looming changes.
What is changing?
As we mentioned before there are two significant changes coming into effect due to the 2018-2018 ACT budget that will impact first home buyers. These are:
- The end of the First Home Owner Grant: This is a grant of $7,000 currently available to first home buyers purchasing a new or substantially renovated home in the ACT (see below for more details). Transactions entered into after June 30, 2019, will not be eligible for the grant.
- The abolition of stamp duty for first homebuyers regardless of whether you are purchasing a new or old home: First homebuyers with a household income under $160,000 will be exempt from stamp duty, regardless of whether they are buying a new or older home. Previously the exception only applies to first home buyers purchasing a new build in the ACT. This change will come into effect from the July 1, 2019.
When it comes to the First Home Owner Grant, the devil is in the details
Part of knowing whether you are better off before or after these two changes come into effect is understanding the nitty gritty of the First Home Owner Grant. Primarily, the criteria you need to hit to be eligible to receive it.
First up, in order to qualify you need to be purchasing a newly built home (like an off-the plan property) or a property that has undergone substantial renovation. Substantial renovations are renovations that impact the entire building, so a new coat of paint or re-doing the kitchen isn’t going to cut it.
Secondly, the property needs to cost $750,000 or less.
And, finally, you need to live in the property for the first 12 months – after all it is called the First Home Owner Grant not the first First Investment Home Owner Grant.
For a comprehensive list of eligibility criteria for the First Home Owner Grant check out the ACT Revenue Office website.
The Canberra Conundrum
Although, there are certainly strings attached to the First Home Owner Grant, it is not without its merits, particularly in the specific conditions that make up the Canberra property Market.
Managing Director of Clarity Home Loans, Mark Edlund, is sceptical about the termination of the grant and talked to us about the implications the upcoming changes will have on first home buyers in the ACT.
‘Canberra enjoys the highest median income in the country, but we also have a very high cost of living. This means that Canberrans generally have an easy time meeting their loan repayments but a harder time putting together money for a deposit’
High rent prices mean that mortgage repayments are comparable, and sometimes even lower, than weekly rent repayments for a property of a similar size. This means money spent on rent could actually be used to make mortgage repayments if the renter just had enough money for that all-important deposit.
According to Mark ‘If you are someone struggling to generate a deposit, the $7,000 from the grant was the difference between being able to buy now or having to wait another year while you save up’
It would seem the First Home Owner Grant was uniquely suited in enabling Canberrans to get into the property market sooner.
The one-two punch: First Home Owner Grant and stamp duty exemption
The First Home Owner Grant begins to look even better when you factor in that currently you can also apply for stamp duty exemption if you are purchasing a newly built home.
‘I’ve seen this grant and this current exemption do a lot of good’ says Mark
‘During my time at Clarity we have helped hundreds of people purchase their first home by taking advantage of the First Home Owner Grant and stamp duty exemption. They wouldn’t have been able to afford to buy without it’
This means that if you were to buy a newly constructed home before June 30, not only would you be eligible for the $7,000 First Home Buyer Grant (assuming the property is worth $750,000 or less, of course) you would also be eligible for stamp duty exemption. That’s one hell of a double whammy.
Who wins under the changes to the First Home Owner Grant and stamp duty?
According to Mark, the group that are the big winners under the switch from the First Home Owner Grant to stamp duty exemption are those who are already financially established.
‘The incoming system will disadvantage those on the lower end of the market, while benefiting individuals and families with a stronger borrowing capacity. If you already have a deposit together, or have the capacity to generate one, then this is a big win’
The other big winners are those that lose under the current stamp duty system: which is those who are after a free-standing home.
Like we mentioned earlier, the First Home Owner Grant and current stamp duty exemption is only for new properties that are $750,000 or less. Given that the vast majority of Canberra’s new housing stock is apartments this means people with kids, pets or those just not wanting to live in an apartment lose out currently.
Although there are some townhouses in this new incoming housing supply these are highly sought after and tend to sell above the $750,000 cap.
So, should I buy before or after July 1?
Now it’s time for the big question: Do you need to make a decision quickly or are you better served by the upcoming changes?
Obviously, you need to assess your own financial position, but the quick summary is this:
If you are planning to buy a newly constructed or off the plan home, then you will most likely be better off purchasing now to take advantage of the First Home Owner Grant and stamp duty exception one-two punch.
If you want to buy an older home, then you are better off waiting. Under the current system you won’t get the grant and will you have to pay stamp duty. If you wait it out until after July 1, then you won’t have to pay stamp duty, assuming it’s your first home of course.
The final verdict
When pressed for an answer on whether the new system was a win overall or not, Mark simply said ‘no’, Stressing that ‘it is a big win for some first home buyers, but not others’ and now you can see why.
*Independent is not a financial advisor. The information contained is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before making any commitment of a legal or financial nature you should consider the appropriateness of the information having regard to your circumstances and needs and seek advice from a legal practitioner or financial or investment adviser.