Why first time home buyers need to be wary of stamp duty incentives

Getting a foot in the door when it comes to property can be hard. However, some states have cracked the door open for first time home buyers to get on to the rungs of the property ladder by introducing stamp duty incentives. This could ease the financial burden for many first time home buyers, but it is advisable that they tread carefully instead of being lured in by this incentive.

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What is stamp duty?

Stamp duty is a type of tax that you pay for property purchases. Stamp duty varies from state to state and the price is usually influenced by the property purchase price. The general rule of thumb is that the more expensive the property the more you will pay in stamp duty. Stamp duty is usually one of the largest expenses you’ll face when buying a house, and that is why you need to factor this in by using a stamp duty calculator before you begin house hunting.

First home buyers cashing in on incentives

What if the financial burden of buying a property was eased with an incentive that removes one of the biggest costs of buying a house with no cost to you? Some states such as NSW and VIC have opened up the door to stamp duty incentives that cancel out the stamp duty fee for first time buyers which has seen home loan lending increase among first time home buyers in these regions.

According to the Corelogic, VIC experienced a 103 per cent increase in financial commitments with the total number of commitments sitting at 2,619. First time home buyers also increased how much they took out which according to ABS rose from $300k to $327,700.

These are the warning signs that first time home buyers are failing to look at other factors that might affect their home buying decisions in the long run. The attraction of stamp duty incentives could leave first home buyers vulnerable to failing to do their due diligence when buying a home that later down the road that could financially destabilise them.

What first home buyers need to consider before jumping into the property market-

The performance of the property market

One of the top factors to consider is how the overall property market you plan on purchasing your house in is performing. This will influence the value of your property and the ongoing maintenance costs that come with it. The adage of ‘You have to know the past to understand the present’ rings true when looking at the Australian property market. Before first time buyers dive in to buy a house in an area they need to analyse that specific property market’s performance in the past, along with the property cycles to know when and when not to buy. A market that is unstable and continues to experience sharp decreases in values should be approached with caution.

Keeping an eye on interest rates

The interest rate is the foundation on which your finances will either stand or crumble. ‘Low interest rates are better, but not all low-interest rates are equal. Some loans may have higher comparison rates – a figure that includes the interest rate and most fees – even though their base interest rate is low on paper. Others may not have the right structure such as offset accounts or redraw facilities to save them money right from the get-go,’ says Savvy CEO Bill Tsouvalas. A question that you need to constantly ask yourself is will you still be able to afford your home should there be a slight increase in the mortgage rate?

Take your time now & reap the rewards later

The incentives are a helping hand to first home buyers who have more than 20 per cent of a deposit ready. However, as with all big financial decisions, you shouldn’t be in a rush to buy up a property. Sometimes taking your time and observing how the market performs will give you more time to save up more to put down on your home, and compare and save on home loan costs. It will also help you find a better deal by having the time to compare prices across various suburbs. If a deal you were interested in passes by there will always be another window open to purchase something better.

For more tips on how to get into your first home take a look at how to avoid borrowing beyond your means, what to do if the bank rejects your loan application, a guide to buying your first home and ‘first home buyer options- which is right for you?‘.