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 installments at a low interest rate.
Traditionally, when purchasing a home you need to show the bank that you’ve saved 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 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 saving than is usually required.
The other great thing with the deferral of stamp duty is that it applies to established an home – 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
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.
It’s not just the ACT that offers such initiatives for first home buyers either. For instance, in South Australia they have Homestart Finance which helps first homer buyers get into their homes with a smaller deposit.
If you’d like to have Jamie provide advice on your finance structure, investment strategy, first home purchase, upgrade or refinance simply complete and return this FORM and he will be in touch – this is a FREE, no obligation service.
The information herein is not intended as investment, financial, legal, taxation, building, development or any other advice and must not be relied upon as such. You should obtain independent professional advice and make further independent enquiries before making financial, legal, taxation, building, development or investment decisions.