Money.com.au’s mortgage expert, Debbie Hays, says some young people are increasing their mortgage to cover stamp duty. Picture: Supplied
A home-buying strategy to help get a foot on the ladder comes with a dire consequence – doubling stamp duty.
And young people are the buyers most likely to be stung.
New research from Money.com.au shows Australia’s “least popular tax” is adding over $50,000 to some Tasmanian mortgages.
Money.com.au found 46 per cent of buyers increased their mortgage to help fund government charges like duty and other buying fees.
Among this group, 28 per cent increased their loan to cover all of their upfront costs.
When buying a median priced $704,000 Hobart home, buyers can expect to pay $27,322 in duty. This balloons to $55,786 in extra costs over the term of a home loan, the research showed.
In regional Tasmania, $20,905 of duty would double to $42,684 if rolled into a 30-year loan.
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Rolling duty into your mortgage is costly.
Money.com.au’s mortgage expert, Debbie Hays, said bundling duty and fees into a home loan can help buyers get into the market sooner.
But it comes with a long-term trade-off.
For a first homebuyer who doesn’t qualify for an exemption, Ms Hays said duty and buying fees can feel like paying a second deposit.
“Many of those young buyers then roll those taxes and fees into their mortgage and take on a bigger debt than they originally planned,” she said.
“The real sting in the tail is you’ll pay interest on that extra amount over a 30-year term, because stamp duty and fees become part of your loan balance.”
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Real Estate Institute of Australia president, Jacob Caine, said this is a symptom of a housing system that is in chaos.
Mr Caine said housing has become unaffordable for most Australians, and the taxation system is no longer supporting fair or equitable access to housing.
“Duty remains the least popular tax in the country, and it is actively stymieing the effective use of our existing housing stock,” he said.
Jacob Caine.
When people cannot afford to move closer to schools, work, or family, Mr Caine said the “entire economy suffers as a result”.
“We end up underusing the homes we already have,” he said.
“Downsizers do not downsize. Upsizers cannot upsize.
“People stay put not because it suits their lives, but because the cost of moving is simply too prohibitive.”
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Ms Hays said, in some instances, financing upfront costs is the only way people can buy a home.
However, buyers should have a plan to reduce the interest, like using an offset account or redraw, she said.
“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,” Ms Hays said.
For investors, she said rolling upfront buying costs into the loan is often viewed differently.
“For investors, rolling stamp duty and upfront costs into the loan is a strategic play. In most cases, the extra interest on the loan is tax-deductible,” she said.
Ray White Group chief economist, Nerida Conisbee.
Ray White Group chief economist Nerida Conisbee said duty costs affected the speed of a market.
“Taxation and government policy can move volumes quickly,” she said.
“Changes to stamp duty, land tax, capital gains tax or investor incentives all alter the financial equation for buyers and sellers.
“These shifts can bring forward transactions or cause them to be delayed, leading to short-term spikes and troughs in sales.”
Money.com.au’s survey found that rolling upfront buying costs into a mortgage was most common among younger Australians, with nearly two-thirds of Gen Z homebuyers (64 per cent) borrowing extra to cover costs like stamp duty and other purchasing fees, followed by 54 per cent of Millennials.
In Tasmania, first home buyers of established homes can receive a 100 per cent duty exemption for properties with a dutiable value of $750,000 or less.
Ms Hays said first homebuyer exemption thresholds haven’t kept pace with rising house prices.
“This means many younger buyers miss out on duty relief and end up adding stamp duty and other fees into their loan,” she said.
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