Q. My partner and I are looking to buy our first home. We have been in the market for quite a few months and have missed out on several properties. We are looking to spend no more than $650,000 on a unit in Sydney close to transport. As neither of us has bought a property before, can you please advise what the changes to the First Homeowners scheme that took effect from 1 July this year will mean for us.
A. Ironically it is likely fortuitous that you have missed out on purchasing your first home to date. The changes to the First New Home Scheme (now referred to as the First Home Buyers Assistance scheme) that took effect from 1 July 2017 in NSW will provide substantial financial benefits to you both.
For NSW first home buyers, Stamp Duty is abolished on all home purchases up to $650,000. If you spend more than $650,000, you will receive Stamp Duty concessions up to a purchase price of $800,000. For a purchase of $650,000, this is a saving of $24,740.
If you were looking to build your own home, the NSW Government will provide a $10,000 grant for builders of new homes up to $750,000 and purchasers of new homes up to $600,000.
If you need to borrow more than 80% of the purchase price, insurance duty on Lenders Mortgage Insurance has been abolished for first home buyers. This is estimated to save more than $2,100 if purchasing a home for $650,000 with a $50,000 deposit.
Given the range of incentives, the key will be to gain the most of the benefits, whilst ensuring you are financially ready to take this step and that this substantial financial decision remains affordable in the long term.
Have a clear understanding of how much you can afford to borrow from a mortgage provider. This is not how much the bank calculates that they will lend you but how much you can afford given your living expenses.
Save as much as possible for a deposit. Regardless of the abolition of Insurance Duty on Mortgage insurance, you will still need to pay Lenders Mortgage Insurance (LMI) if you borrow more than 80% of the purchase price. The closer you can get to a 20% deposit, the lower the amount of LMI you will pay.
Allow a budget for new furnishings and white goods purchases. If you need to furnish the place, factor this into your calculations.
Build a buffer into your savings for an emergency fund. An emergency could be anything such as house repairs, replacing a car, loss of income due to redundancy or ill health. The emergency fund can sit in the mortgage offset account to be drawn upon in an emergency or can be redrawn on the loan. Just ensure that in either case, it is readily accessible.
When you buy your home, please review your insurances. Not just House and Contents cover but Death, Total and Permanent Disability, Trauma and Income Protection insurance. Identify your insurable needs; either a lump sum or income and use the appropriate insurance to cover the risk. Structure this cover in the most tax efficient way possible.
Plan for future contingencies. If you or your partner expect to spend a period of time out of the workforce to have a baby, then factor the future loss of income into your calculations.
Build a buffer into your cash flow, in case Mortgage interest rates rise. How would a 2% change in interest rates impact your affordability? Aim to reduce the mortgage as quickly as you can to reduce the impact of future mortgage interest rate rises.
Regardless of the new First Home Buyers Assistance scheme, essentially ensure that you take the next step having a full understanding of what costs you will incur, what ongoing cash flow requirements you need and that the property will meet your needs beyond the immediate term.