Excessive upfront property taxes are plunging desperate home buyers deeper into debt and adding an average of $100,000 to the cost of their homes, new research has revealed.
The data from money.com.au showed it is becoming increasingly common for home buyers to roll the cost of stamp duty into their mortgages – largely because saving up the money will add years to the time it takes them to buy.
The typical stamp duty bill for someone buying a home at Sydney’s median dwelling price of $1.24m is about $51,000, equivalent to almost half the average earner’s yearly income.
This is on top of the nearly $125,000 that would be needed for a 10 per cent deposit on the same property purchase.
The high cost of stamp duty could add $100,000 to the lifetime loan for a Sydney home. Picture: iStock
Money.com.au revealed many buyers were unable to stump up the cash to pay for stamp duty taxes and 46 per cent were making arrangements with their lenders to add the charges into their loans.
Among Gen Z home buyers, the figure going into deeper debts to pay taxes was 64 per cent.
Coupled with interest charges, rolling stamp duty charges into a mortgage would add an average of nearly $104,000 to the lifetime costs of the loans at the current median dwelling price, money.com.au noted.
This cost would rise even further with additional interest rate hikes, something three of the big four banks are expecting to occur again as early as May.
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According to Mortgage Choice, stamp duty nets the NSW government approximately $10bn annually. Picture: NewsWire/Monique Harmer
Money.com.au mortgage expert Debbie Hays said those borrowing extra to pay for taxes were trading faster access to the housing market for longer term pain.
“If you’re a first home buyer who doesn’t qualify for an exemption, stamp duty and buying fees can feel like paying a second deposit,” she said.
First-home buyers are currently supported with an exception on stamp duty charges for purchases under $800,000, but FoundIt showed only 19 per cent of Sydney listings fall in this price band.
Ms Hays said taking on extra debt meant the home buyers were reliant on prices continuing to rise.
“When the property grows in value, the equity can put them in a better position to refinance or restructure their loan down the track to pay less interest.”
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Housing Industry Association NSW executive director Brad Armitage says stamp duty is “inefficient”. Picture: LinkedIn
Housing Industry Association NSW director Brad Armitage said he wasn’t surprised stamp duty was now getting people into more debt, as it remains a high cost.
He said the state government had become “financially dependent” on stamp duty, calling it “inefficient”.
“It forces people to stay in homes that no longer meet their needs and it is an unreliable source of revenue,” he said.
Mr Armitage said stamp duty was so high in NSW that it acted as “a giant handbrake” on government efforts to diversify housing stock.
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Chantelle Perreau and her husband spent around $70,000 on stamp duty when buying their property. Picture: Rohan Kelly
Chantelle Perreau bought a Chatswood unit late last year for about $1.5m and said the nearly $70,000 she had to pay in stamp duty was frustrating.
“There were so many expenses that we did not see coming when we moved in,” she said.
“If we didn’t pay as much in stamp duty, it could have gone towards getting our electricity and plumbing up-to-code,” she said.
Ms Perreau said their unit had a number of issues when they moved in, which they were stretched to pay for fixing after the hefty upfront costs of buying.
“It could have paid for so many things that we could have done, instead of us just handing over $70,000 to the government.”
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Mortgage Choice broker Chantelle Rangel said stamp duty charges were particularly daunting for first-home buyers.
“Stamp duty and upfront costs can absolutely feel intimidating,” Ms Rangel said.
“The most important thing I’d say is don’t rule yourself out before speaking to a broker.
“There are actually many options available to help alleviate those costs.”
Ms Hays said: “Sometimes financing those upfront costs is the only way people can buy a home, but buyers should have a plan to reduce the interest, like using an offset account or redraw.”
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