The Victorian State Government in their most recent budget have announced changes to the first home owner grant which could potentially cost you big savings if not understood .If you planned to purchase your first home in the next 2-3 months it is essential that you understand the changes and seek the advice of your accountant and mortgage broker prior to signing a contract.
What are the changes?
There are two changes. The first relates to the first home owners grant and the second relates to an increase in the reduced rate of stamp duty available to purchasers of first homes.
Changes to the Victorian first home owners grant
The change to the first home owners grant will impact people in two ways.
For those purchasing new properties:
For contracts entered after 1 July 2013 for people who plan to purchase a newly constructed home the grant will increase to $10,000 from the current $7,000 for properties valued less than $750,000. This could mean that is advantageous to hold off purchasing until after that date to benefit from the increased grant available
For those purchasing existing properties:
For those looking to purchase existing properties the grant will be abolished. If you plan to purchase an existing property you must enter into a contract to purchase prior to 30 June 2013 to be eligible to receive the existing grant of $7,000. This could have significant implications for people who have relied on receiving the grant for mortgage pre approval from their bank or broker as your borrowing capacity will be impacted.
Stamp duty concessions
The duty reduction available for eligible first-home owners of both newly constructed and established homes will increase to 40 per cent for contracts entered into on or after 1 July 2013 for homes valued up to $600,000. This is an increase from the current rate of reduction of 30%.
|New Dwelling||Existing Dwelling|
|Contract date||Pre 1 July 2013||Post 1 July 2013||Pre 1 July 2013||Post 1 July 2013|
|Stamp Duty Payable*||18,370||18,370||18,370||18,370|
|Stamp Duty Concession||5,511||7,348||5,511||7,348|
|First Home Owners Grant||7,000||10,000||7,000||–|
|Net Amount Payable||445,859||441,022||445,859||451,022|
* Assumes Property cost is dutiable value
The above example highlights the impact for potential first home buyers. For those looking at new home purchases entering into a contract after 1 July will result in a saving of $4,837 while for those people planning on purchasing an existing property entering into the contract after 1 July will result in $5,173 in additional costs. Existing dwelling buyers who are relying on the First Home Owners Grant to assist with their deposit will need to discuss this impact on their borrowing ability with their mortgage broker or financial institution.
What should I do?
Seek advice as soon as possible from your accountant or advisor. As with all changes in legislation there are misconceptions floating around so don’t be caught out by obtaining inaccurate advice. As seen in the above example a correctly structured purchase can have 1% impact on the total cost of the property that will most likely directly impact your borrowing capacity as well as costing you money. Entering into a contract without due consideration could be costly.
If you are looking to purchase your first home, contact your local William Buck advisor.