NSW first home buyers' benefits and stamp duty exemptions: make sure your advice is up to date

I’ve had the unpleasant experience recently in having to explain to a number of clients who have shopped for property, experienced the usual anxiety and excitement, seen their finance adviser & assured of finance, that the entitlement or benefit their finance adviser explained they’d receive, that they actually won’t.  Even though it was someone else who provided incorrect or out of date advice, I’m made out to feel like the Grinch because I provided the correct advice as what the current law is!

So, here is what I hope is a quick and simple statement of what the NSW situation is regarding stamp duty exemptions and first home owners’ benefits for contracts made on or 1 October 2012 to date.

First home buyers
Current scheme is the First Home Owner Grant (New Homes) Scheme.

Where the property is $650,000.00 or less, a first home buyer who buys or builds a new home is eligible for a $15,000.00 grant.

This grant reduces to $10,000.00 for contracts made from 1 January 2014.

In addition, there is an exemption from paying stamp duty when buying a new home, or vacant land where a new home is to be built.  This applies for homes priced up to $650,000.00, and vacant land up to $450,000.00.

Non first home buyers

There is now the NSW New Home Grant Scheme. 

Non first-home buyers are entitled to a grant of $5,000.00 if they buy a newly built home (including "off the plan" purchases), priced up to $650,000.00.  If the duty normally payable happens to be less than $5,000.00, the difference is given as a grant.

Non first-home buyers who buy vacant land priced up to $450,000.00 with the intention of building a new home on it are also receive the grant.

 

Regional Relocation Grant

The RegionalRelocation (Home Buyers Grant) is about helping previous owners of a metropolitan property with the cost of relocating to a regional home with a one-off grant of $7,000.00.
 

The price of the regional home must not exceed $600,000.00 (or $450,000.00 for vacant land). There are other requiremnets, but these are the major ones.

 

That’s it!

There’s no more $7,000.00 first home owners grant, no more reduced stamp duty, no more new home buyers’ supplement, no more first home owner boost.

If you’re in the process of buying now and you’re advised differently to what’s above, or there is a question mark about what benefits exactly you might be entitled to, or just to check your eligibility, see your solicitor first.

Westmead pips Liverpool to top first home owner grants list

According to the NSW Office of State Revenue (OSR), Liverpool has consistently been at or near the top, on a yearly basis by postcode, in receiving the most first home benefits in NSW in terms of total grants and total value of grants.  I’ve previously commented on this here in 2009, and here in 2010.

According to the latest figures though, Westmead tops that list for the most recent 12 month period to 31 March 2012.  During that period there were 776 first home grants received in the Westmead area (Liverpool 733), totalling over $5.8m.  The first Home Plus benefits for Westmead are respectively 701 by number (2 less than Liverpool) and $9m by value (Liverpool, $8m).

The OSR’s pdf summary sheet is here. 

Liverpool, however, easily tops the “all-time” NSW list for 1 July 2000 to 31 March 2012, in both total number of grants and by value of first home benefits.  Interestingly, Westmead comes in at second place.  The OSR’s figures for these are in this pdf summary here.

NSW OSR releases video summarising available first home buyers' benefits

Just a little while ago, I started preparing, and checking, for a post I expected to publish on this blog within about a week from now.

The subject was about what benefits, including firt home owner's benefits, are presently still available for home and land buyers in NSW.

I've just learnt that my work's been cut out for me!

The NSW Office of State Revenue has just released a YouTube video it describes as providing a "summary of the first home benefits available from the NSW Government".

Rather than me ramble on, have a look at the "video".  Well... it's more of a slide show with lots of text really but hey, if you're an intending first home buyer, the real vaue is in the content, not the presentation.

There are some other limited concessions available for property buyers, but more on those later.

Signing a contract outside of your solicitor's office? Be wary of last minute added clauses

In NSW, real estate agents are authorised by law to exchange contracts for the sale of residential property.  That authority is not unlimited however.

The law provides, paraphrased,  that a real estate agent may, presumably after a buyer has been found and a sale negotiated between the buyer and seller:

• complete parts only of a proposed contract (usually one that’s already been prepared by the seller’s solicitor or conveyancer) by inserting details of the buyer’s name and address, the name and address of the solicitor/conveyancer acting for the buyer, the price, and the date;
• insert in or delete from a contract description of any furnishings or chattels to included in the sale; and
• as stated, and providing they’re authorised by the seller or their solicitor/conveyancer “participate in the exchange or making of contracts”.

Despite these clear and limited provisions, it isn’t uncommon to find agents that regularly do more, sometimes much more, than this. 

It’s also not uncommon for contracts ending up in court litigating the meaning of clauses apparently quickly drafted and added very late to contracts; though well intended, ended up being difficult to understand or to make workable.

Regardless of their outcome, court cases are expensive and stressful.  If you find yourself in a situation negotiating the buying or selling of a property and clauses being drafted and added to a land sale contract by anyone other than through negotiations via the parties’ lawyers, think about what’s stated above.  You need to be aware of the risks.  If in doubt, it may be easier to just not sign, and to consult your lawyer.

First time property investor? Beware; ensure the premises are safe!

Buying a residential property is a popular investment strategy for many Australians.  In my experience it continues to be a first time venture for the many buyers I meet.

Properties range from old to brand new, from “studio” or “bachelor” units to multi-bedroom houses.  No matter.  If you’ve bought, or are just about to buy, your first residential investment property, even if you’re a landlord already, take care!

Your managing agent and your accountant can advise you on the business side of things, but as a landlord, the law imposes duties on landlords that they must still take reasonable care concerning the dangers that might exist on premises they rent out, even hidden ones that aren’t readily apparent on inspection.

For example, is there safety glass installed where it’s required  that meets current standards?  Is there any defective electrical wiring?

Real court cases emphasise the need for landlords to carry out detailed inspections before properties are rented out – it’s usually not enough to just leave it to the agent.

It’s also not enough to claim that a tenant accepted the property “as is”, or that you just bought the property and “didn’t know” of a defect. 

The High Court stated the landlord is in the best position to control the state in which premises are let and therefore owed a duty to tenants to eliminate defects in the premises before tenants move in.  So, inspections are necessary before the new tenants move in.  Ensure full records are kept showing that obligations have been met regarding these inspections.

Here’s a curly one.  You just bought an investment property and your first tenant is the seller of that property, certainly not an unusual occurrence.  Who’s responsible if a short while later your new tenant has an accident falling through the glass front door suffering severe injuries because the door was fitted with the wrong glass?  You don’t want find out then that perhaps your insurance policy doesn’t cover you!

This case emphasises the necessity of landlords carrying out detailed inspections before premises are let.

With judgments of in the order of $1.2m and over $840,000 in these types of cases, don’t chance it!  They highlight the necessity of landlords to carry out proper inspections before properties are rented out.   If in doubt, have a chat with your lawyer.

Buying and “cooling off” – know this

Well first, why have this? It mostly results from attempts to reduce the practice of gazumping in real estate transactions.  More on this practice in a previous post. 

If you’re a buyer, there is information here that may be useful to you but always seek the advice of your own solicitor or conveyancer when looking at your own particular circumstances.

The law requires sellers of residential property to have a copy of the proposed contract available for inspection by any purchaser (link to relevant NSW law here).  The proposed contract here means the full proposed contract will all relevant documents, not a “draft” that’s still waiting for compulsory attachments yet to arrive.

Take a situation where, typically through a real estate agent, a buyer has negotiated a purchase of a house, the seller agrees to price and perhaps other terms.  The buyer hasn’t yet consulted their solicitor, they’ve heard something about pest and building inspections, and the bank loan still has to be organised.

Say you’re the buyer and you’re keen on the house – dare I say, you love it!   Understandably you’re also worried about signing a contract with these other things still to attend to.  Importantly, you’re also worried about losing the chance, especially because you’ve worked out that the sales agent, and other in his/her office are keen to sell to anyone else, even though you’ve done a deal while you’re off doing the other important things.

Where a buyer signs the contract with a real estate agent and the agent does the exchange of contracts, by law the buyer has a minimum 5 clear business days cooling off period – so weekends and public holidays are excluded.  If contracts are exchanged on a Tuesday afternoon, the cooling off period expires at 5.00pm on the following Tuesday; if the agent exchanged on a Sunday, the cooling off period expires at 5.00pm on the following Friday.

Now the buyer is meant to do what they have to do, for example consult their solicitor, arrange pest and building inspections, and ensure they obtain their unconditional loan approval for the funds they’ve applied to borrow.

The buyer is entitled to pull out of, or rescind, the contract for any reason whatsoever anytime during the cooling off period.  There is a relatively small cost; if the buyer exercises their right to withdraw from the contract, they forfeit 0.25% of the agreed sale price – typically this amount has already been paid to the agent at the time of signing.  The seller however, can’t rescind for any reason, even if they receive a better offer – see the same earlier post.

These days, many lenders are taking somewhat longer to approve loans.  If the 5 day cooling off period is too short and the buyer needs more time, before the cooling off period ends, the buyer can request and extension to the cooling off period.  To ensure problems are minimised, this is probably best done by the buyer well before the expiry time, and through your solicitor.

The cooling off gives buyers some peace of mind and a period of time to attend to and finalise matters relating to contract, secure in the knowledge sellers can’t change their mind or accept other offers, and goes some way in minimising gazumping.

Beware too.  Once the cooling off period comes and goes, unless the buyer has rescinded before the expiry time, the contract becomes binding and unconditional.

Are there any disadvantages?  Yes, there are some.  The first one is the cost of rescinding.  There are legal, inspections and other like fees the buyer incurs.  In addition, the buyer forfeits the 0.25% of the price to the seller.  On a $600,000 price, that’s $1,500 – it’s form of compensation to the seller.

Another disadvantage is that while terms of the contract can still be negotiated during the cooling off period between the parties’ solicitors, the bargaining advantage remains with the seller.  They know they have a keen buyer – the buyer has already committed a part deposit and incurred expenses. 

With this knowledge, sellers are generally less inclined to negotiate away terms compared to if the negotiations were taking place before contracts are exchanged and the seller wants to encourage a buyer to commit.  In my experience, I have found that there are now many more contracts drafted for sellers with numerous additional generic clauses to cover many contingencies in favour of the seller, sometimes even taking away or changing already very reasonable clauses in the “standard” contract.

First homebuyer? Stressed? Trust your solicitor.

In recent weeks I’ve noticed a spike in first home buyer related inquires, sales and purchases, which appeared to have some connection with the stamp duty exemption benefit ending soon that I’ve referred to recently.  

This article yesterday reports a surge in recent auction sales for the same reason, consistent with my office’s experience.

First home buyers range from the well prepared to the no so well prepared.  The common trait though is stress, anxiety and sometime anger – not uncommon emotions in the home buying experience.

No wonder, as a fair proportion of this results from the different advices, sometimes contradictory, buyers receive from numerous others, including from real estate agents, from families and friends, and from finance brokers.

My advice: trust your own solicitor, above all others, that have some connection with your transaction. Your solicitor is the one person that always offers unbiased help, guidance and advice.

If you’re feeling the pressure during your home purchase roller-coaster-like ride, your solicitor is the only professional that’s retained by you specifically to guide you, advise you, especially to protect you and your interests.  Remember that.

Tick, tock... the NSW first home buyer’s clock!

Are you a first home buyer in NSW?  If so, remember a major benefit ends at the end of 2011.  That’s just 8 weeks away.  After you factor in the usual Christmas/New Year closures or winding down of staff in the offices of many lawyers, real estate agents, mortgage brokers, conveyancers, property inspectors, and banks, not to mention your own holidays, there’s even much less time to act.

In addition to the Commonwealth’s $7,000 grant, in NSW since 2004, eligible first home buyers have been entitled to some additional very valuable stamp duty benefits under the First Home Plus Scheme.

These included exemption from paying any stamp duty on homes up to $500,000, and a sliding scale of discounts on stamp duty for homes from $500,000 to $600,000.   Even for vacant land on which you intended to build a home, stamp duty exemptions applied to such land up to $300,000 and the concessions on land between $300,000.00 and $450,000.00.

On a $500,000 house, that’s a saving on nearly $18,000.  Even for a $350,000 house, the saving is more than $11,240.

This about to change in a major way.

For contracts made from 1 January 2012 in NSW, all that will be replaced by the First Home – New Home Scheme.

Essentially, eligible first home buyers will only be entitled to the stamp duty exemption and concession benefits when buying a first home that is a new home, or a vacant block of land intended to be the site of a first home.  The benefit will no longer be available when purchasing an existing home.

If you’re a first home buyer, or soon will be, consider not only the above, but also whether the clock ticking away, as well as the recent official interest rate reduction, could combine to add a little heat in this market over the next few weeks. If you're under a little under pressure, unsure about different advices you're getting from many people, think about seeing your solicitor.

If your finance isn't arranged & approved, don't bid, don't buy!!

Buying real estate is a BIG deal for most of us, so don't screw it up!

Most solicitors and advisers will strenuously advise their clients buying a property to ensure their finance is unconditionally approved before committing to a purchase.

It's important to also realise that "indicative approval" or "pre-approval" for your home loan application is NOT the same thing.

Entering a purchase contract is the real thing. If you can't afford to complete your purchase, you may end up losing more than what you bargained for. The story in this article in today's Sydney Morning Herald is a simple but clear example of the possible consequences.

The buyer breached the contract they entered because they couldn't get the funds, borrowed or otherwise, to buy the property they bargained for. The seller subsequently sold the property to another buyer for significantly less than what the first buyer had contracted. The seller successfully sued the first buyer for the loss suffered resulting from the first buyer's breach of contract, being largely the difference between the price in the first contract and the lesser price in the second contract.

Take care!

Lender’s mortgage insurance premiums - One way to “make” some money back!

While the typical average Australian home loan term is around 25 to 30 years, the average length of a home loan is reported to be 5 years, some say even as low as 3½  years.  If these figures are averages, there must be many loans that are discharged much sooner.  In my experience, it’s becoming rarer for a home buyer to live in the one home for lengthy period of 20 years or more.  Australians buy and sell their homes for a variety of reasons:  to improve their lot; so called sea changes and tree changes; moving to where the jobs are; moving out when jobs are gone….

So, the issue is, while home loans are typically designed for the long term, most often borrowers barely last the distance.  Many borrowers are also required to pay their lender’s mortgage insurance premiums.  This insurance covers the lender, not the borrower, but it’s the borrower who pays the insurance bill.  I’ve seen such premiums as high as $18,000, but typically are around the $4,000 to $8,000 mark.

The premiums are a once only payment, providing cover for the term of the loan… remember, terms that are assumed to be for 20 to 30 years!  But many of these loans are discharged within 5 years.

So, what happens for that part of the premium covering the term of the loan that’s no longer there?  Nothing, unless you do something about it!

Have you ever sold a car and then obtained a part refund of your insurance premium when you cancelled your insurance cover?  It’s a comparable situation.

Many lenders don’t tell you, but in most cases you can do something similar regarding lender’s mortgage insurance premiums you’ve paid if you pay off your home loan early.  The earlier it’s paid off (for example, you’ve sold the property) the greater the chance of a significant refund of part of the previously paid premium.

The refund amount varies, and many factors can affect it.  For example, whether the borrower has defaulted, how many (or how few) years of the loan have passed, but it can be up to 40 to 50% of the original premium!

It’s the mortgage insurer that ought to be approached, rather than the lender, but if you’re about to borrow and a lender’s mortgage insurance premium is payable, it would be very prudent to clarify with your lender their policy on refunding mortgage insurance premiums.  Be prepared to be firm and press for an answer.  Many lender’s staff and some brokers aren’t even aware of this, so they may need encouraging to find out more for you.

Buying off the plan on again?

A headline in Sydney’s major broadsheet newspaper today succinctly declares “Off-the-plan unit sales run hot”.

If you’re considering taking advantage of buying a property “off the plan, It’s probably timely to take a deep breath, not get caught up in any hype, and just recall some of the pitfalls that can and do occur.

One claimed benefit of buying off the plan is that some consider it a good opportunity to purchase at a price that is more likely to be considered a bargain when the property is eventually developed and the purchase completed.  The time from contract date to completion often won’t take place for several months, if not a year, or two, or three!

So what are what are some potential issues?

The completion date – how does the contract define it.  More importantly, what obligations, if any, are on the developer to comply, and how can it be extended.  What rights does the buyer have to get of a deal that keeps getting delayed?  Can you as buyer get stuck with a deal that’s gone sour and delayed by years?

Do you know exactly what you’re getting? Really, do you?  Is the quality of appliances comparable to those in the brochure or display unit?  What about dimensions?  What scope is there for variations between the dimensions in the contract and what ends up built?  Can you end up being stuck buying a butter box rather than the penthouse you expected?  Are the tennis courts and swimming pool part of a later stage, one that may take years to develop, if ever?

Don’t forget your deposit bond.  These have expiry dates.  A buyer can unintentionally be in breach if the bond expires, because of continued delays.

Then, of course, there are building defects - how are these defined; what obligations are on the developer and the buyer?

Lots of questions, but few answers I’m afraid.  These are all real issues that do arise, and often in off the plan purchases.  Sure, they can arise in any property purchase, but buying off the plan is something akin to buying vapourware.

Just make sure you’re not rushed into signing anything, seek legal advice on the contract, and keep a cool head.  Yes, there can be advantages and savings, but just know there are risks to balance too.

Liverpool - in Sydney's south-west - again tops first home grants

The latest NSW Office of State Revenue data shows that again, the area (by postcode) receiving the most first home benefits in NSW (both in terms of total grants and total value of the grants) are made to buyers in Liverpool, in Sydney's south-west.

In the 12 month period to 30 November 2009, there were 1,345 first home grants received in the Liverpool area totalling over $19.9m. There were slightly more recipients of benefits under the NSW First Home Plus scheme, which includes stamp duty exemptions in addition to the grants. When the First Home Plus benefits are included, the total value of benefits to first home buyers in NSW totalled over $33.9m for the same period.

From when the grant scheme commenced on 1 July 2000 to 30 November 2009, Liverpool also tops the list, with 8,097 grants. This is significantly more than the area with the next highest recipients, Wentworthville, with 5,603.

I understand the national figures published by the ABS are scheduled to be published this month.

NSW Stamp Duty Concession Extended!

Following lobbying by the building industry, the NSW government announced an extension of the concession available in NSW under the Housing Construction Acceleration Plan, to 30 June 2010. Before the extension, this benefit was due to end tomorrow, 31 December, 2009.

The scheme, originally announced as part of the government's economic stimulus plan, applies to contracts entered from 1 July 2009, is not for first home buyers; it's for eligible buyers of newly built homes up to $600,000.00. Eligible applicants are entitled to a 50% discount on stamp duty. Contracts now must be entered on or before 1 July 2010, and construction must be completed by 31 December 2011.

What could this mean to you? If you're not a first home buyer but you're thinking of building a new home in New South Wales, if you enter such a contract after 1 July 2009 and before 1 July 2010, you could save up to just over $11,000.00 in stamp duty.

There's more detailed information in an updated factsheet on the Office of State Revenue's website.

On a different note, the federal government's $7,000.00 grant to new home buyers as well as the grant of $3,000.00 to buyers of existing homes does however end on 31 December, 2009.

Falling interest rates are claiming some home loan victims

If you're on a fixed rate home loan, make some enquiries before you commit to re-financing or discharging that loan. Remember, if you're selling a property, that usually means you'll be also discharging your current loan.

Despite all the gloomy financial news from the onset of the current global financial crisis, most Australian home borrowers, particularly those who've been repaying their loan for some time, at least were able to grasp the positive benefits of falling interest rates, significant reduced interest and/or repayments on their mortgages... or have they?

Believe it or not, there are financial victims from falling interest rates. If your home loan is a fixed interest rate loan for a fixed period, then beware!

Fixed interest rate mortgage loans are those where a borrower's mortgage interest rate and repayments are fixed for a set period. They make it possible for borrowers to avoid interest rate increases on their fixed rate home loan. Their popularity therefore tends to increase in times of rising interest rates. Depending on their circumstances and advice obtained at the time the loan was first obtained, these borrowers can set the fixed rates for periods from 12 months to 5 years or more.

Fixed interest rate mortgage loans are also a gamble. The sting is what happens in times of falling interest rates. If you're a borrower who wants to switch loans, or pay off a fixed rate home loan (usually when selling a property) watch out for those break costs.

Break costs is the additional amount, over the amount of the loan still outstanding and owning, you must repay to a lender. If you repay your home loan before the agreed fixed rate period ends and interest rates have gone down, the lender can only re-lend those funds it recovers from you at a lower rate than the rate they had you locked into. The break costs is the lender's claim for the financial loss they "suffer" from this.

There have been previous reports about a rise in complaints made about banks' break costs charges.

This doesn't surprise me. I too have noted similar complaints in the same period about the same issue from my own clients. Calculating break costs can be quite complex and involves many variables.

One client, aware of the issue a couple of months ago, enquired to his bank when deciding whether to sell his investment property. His bank quoted a break costs fee of $7,000.00. With that information he committed to a sale. As there have been at least 2 interest rate decreases since, his bank now advises this fee increased to over $18,000.00!! Furthermore, with his sale due to be completed in 2 weeks, his bank warned that this fee will increase again if there's a another fall in official interest rates.

If you're deciding whether to re-finance your current fixed rate home loan, whether to sell a property where you have a fixed rate loan, or even if you're thinking about switching to a fixed rate loan, the least you should consider doing before committing yourself includes:

• Ask! Ask you lender if break costs apply to you if you discharge that loan.
• Ask how those costs are calculated
• Ask if it is prepared to waive or at reduce those costs
• Will your lender agree to commit to quoted break costs remaining unchanged at least for a short period, regardless of interest rate movements?
• Consider and compare the real savings from taking out a new loan with lower interest rate, compared to the costs you'll incur for discharging your current loan.
  
• If you feel you've been charged break costs improperly, or have been misled, seek professional advice, or contact the Banking & Financial Services Ombudsman.
  

Deciding when to buy... tougher decision for First Home Buyers

With handouts by the federal and NSW state governments totalling up to $24,000.00, plus stamp duty concessions in NSW all available to first home buyers, making that decision on whether, or rather, when, to buy just gets tougher.

On the one hand, there's evidence of continuing falling home prices. So, do you wait until they fall further?

But, the additional government cash handouts are scheduled to end by 30 June 2009.

Does the Reserve Bank's hold on further reducing official interest rates (see this news item) send a positive signal for the economy? If so, could that result in home prices holding, or maybe even increase?

No, I don't have an answer, and my crystal ball is in for a major service, but John Kavanagh's article in the Money section of today's Sydney Morning Herald provides some helpful insights.

Proof of Identity Factsheet for NSW First Home Buyers

In last week's post I noted how the NSW Office of State Revenue (OSR) informed those of us on its mailing list of new Proof of Identity Requirements to be introduced for NSW First Home Plus (FHP) applicants and their spouses.

The OSR has now published this factsheet (it's a downloadable PDF document) listing the acceptable documents it requires. Note that 4 separate certified copies of documents, at least 1 from each of the 4 categories are required.

First Home Buyers, remember, from 20 April 2009, only the new FHP application form with the POI requirements will be accepted.

NSW First Home Buyers - New requirements for first home benefits applicants

The NSW Office of State Revenue (OSR) today issued a notification advising that from 2 March 2009, it is introducing Proof of Identity (POI) requirements for First Home Plus (FHP) applicants and their spouses (mainly exemptions from stamp duty on most contracts for first home buyers).

These POI requirements for FHP will be the same as those required for applicants in the First Home Owners Grant Scheme (these include documents from 4 categories - for example, birth certificates, citizenship certificate, current passport, Medicare card, evidence of applicant's residential address).

Knowing what new documents are required and when, can help a first home buyer smooth the whole process in applying for FHP benefits.

Whilst the current application form will be accepted by the OSR up to 19 April 2009, from 20 April 2009, only the new FHP application form with the POI requirements will be accepted.

Details, including guides and factsheets, are expected to be posted on the OSR's website soon.

First home buyers should be at least aware of these coming changes and ensure they're complied with. The last thing you want, as a first home buyer, is for a purchase to be delayed or compromised because the FHP benefit you're relying upon couldn't be processed and be ready for settlement due to incorrect or obsolete forms being completed and lodged.

Typically FHP application forms are processed by the first home buyer's solicitor or representative, whereas the application for the First Home Owner's Grant (FHOG) are processed by the buyer's lender or finance broker.

Here's a practical hint. As the POI documents are to be the same as those used in the FHOG application, as a first home buyer, it would be most helpful if you keep a duplicate set of certified copies of those same POI documents used in the FHOG application to give to your solicitors for use the in the FHP application.