Is stamp duty pricing you out of the market?

The state tax, which Treasury has described as “one of the most distortive taxes in Australia’s economy”, for many also represents the final hurdle to reaching the all-important 20 percent loan-to-valuation ratio (LVR).

When many first home buyers were surveyed recently to rank the factors they believed would help more people buy property, reduced stamp duty costs have been the most common response.

Closely followed by, first homeowners/builders grants.

An example of how stamp duty can affect the ability of many first home buyers to complete that purchase is as follows:

If a customer were looking to buy a median-priced $706,000 house in metro Melbourne, they would need to budget for approximately an additional $37,430 to the cost of their purchase.

If they have just successfully managed to save a 20 per cent deposit, having to pay stamp duty will invariably put them in a position where they would either have to forgo this purchase, or borrow more than 80 percent and use their savings to cover the deposit and stamp duty.

This then brings in another beast called Lenders Mortgage Insurance. I will look to discuss this at a later time..

Couple this with loan eligibility also changing recently and the combination of the extra hoops to jump through, and additional costs can invariably price people, especially first home buyers, out of the market.

Stamp duty has been described by some people as a “runaway cash grab that’s hurting Australia’s economy and locking out potential homebuyers”.

According to another expert “Taxes are supposed to lean lightly on the economy, not act as a barrier to economic activity, job creation, and prosperity, but that is precisely what stamp duty does,”

According to the Property Council of Australia, the actual cost of stamp duty over the life of an average mortgage (where the stamp duty has been included in the mortgage) is now $61,542 in Sydney.

In other capital cities it as follows:

• Melbourne, $56,616
• Brisbane, $14,733
• Hobart, $21,564
• Perth $33,654
• Canberra $35,427
• Adelaide $30,393
• $49,701

Has factoring stamp duty priced you right out of the market?

Please feel free to let me know your experience

Rebecca Mitchell is the founder of Awesome Lending Solutions