Scrapping stamp duty may save Australias $57k or get them into a home five years faster

Aussie home buyers could be tens of thousands of dollars better off if the latest recommendation to scrap stamp duty is followed through.

On Friday, the House of Representatives Standing Committee on Tax and Revenue released its inquiry into housing affordability and supply in Australia. The findings suggest that Australian states should ditch stamp duty and potentially replace it with a broad-based land tax.

This isn’t the first inquiry into housing that has suggested doing away with stamp duty in favour of annual land taxes. A report from the National Housing Finance and Investment Corporation released mid-last year stated that homeowners may actually benefit from moving away from stamp duty.

Stamp duty, or transfer duty, is one the most significant upfront costs associated with purchasing property outside of saving the deposit. And unlike Lender’s Mortgage Insurance which can be added to the loan itself, stamp duty must be paid upfront.

There are different stamp duty concessions and exemptions available across states and territories for first home buyers. However, these can be capped depending on the value of the property.

And with the latest CoreLogic data showing that house prices increased a staggering 24% in the last year alone, it’s no surprise the additional cost of saving up for stamp duty on top of six-figure deposit sizes is overwhelming home buyers.

So, how much better off could Aussie buyers be if stamp duty were scrapped? And how much time could Aussies shave off saving for a deposit if they didn’t’ have to factor in this extra cost?

The cost of stamp duty in Australia

RateCity has crunched the numbers on the latest CoreLogic median dwelling prices in Australia to discover how much stamp duty could cost in each capital city. These figures are based on an owner-occupier not purchasing their first home.

Stamp duty costs on median dwelling prices in Australia

Source: CoreLogic Hedonic Home Value Index 1 March 2022, State and Territory Revenue Duty Calculators.

For first home buyers, it’s safe to assume they may opt for a more entry-level home value when searching for their ideal property. However, it’s still worth exploring how much a home buyer would need to save on top of a 10% deposit if they wanted to purchase a median-priced dwelling in Australia.

Total deposit needed including stamp duty in Australia

To simply afford a 10% deposit in each capital city based on median dwelling prices, the amount a homeowner needs to save ranges between $72,000 and $157,000. In the case of Sydney residents, stamp duty adds an almost $50,000 extra cost to the $111,622 deposit required.

This means that by removing the barrier of saving for stamp duty, home buyers save tens of thousands of dollars. This money could be put into a bigger deposit or into paying off the mortgage.

First home buyers may be able to qualify for some stamp duty concessions and exemptions. For a full list of stamp duty exemptions and concessions available to first home buyers, it’s worth checking your State Revenue website.

Note that these figures do not factor in Lender’s Mortgage Insurance, which may be charged by the lender if you have a deposit under 20%, as this amount can be added to your mortgage and repaid over time. While this is also a fee charged to homeowners that can cost tens of thousands of dollars – plus the extra interest charges - theoretically it doesn’t have to be an “upfront” payment.

Time saved by scrapping stamp duty

Based on the above 10% deposit figures, RateCity research found just how long it would take a homebuyer to save up for a deposit including stamp duty.

Time taken to save a deposit including stamp duty

Note: Based on base savings rate of 0.10%. Does not factor in potential savings rate fluctuations.

When factoring in the additional upfront cost of stamp duty, saving a 10% deposit for a median dwelling value in Sydney could take between 7-15 years depending on your weekly deposit amount. For Melbourne, it could take between 5-11 years, and for Brisbane it could take between 4-8 years.

However, when you take stamp duty out of the equation, the time savings become more evident.

Time taken to save a 10% deposit without stamp duty

Depositing $200 a week for a 10% deposit on a median dwelling in Sydney without stamp duty could shave five years off the time taken to save. And for buyers in capitals like Adelaide and Perth saving $200 a week, this could shave 2-3 years off the wait time for a home.

In a time of record house prices, the upfront cost of stamp duty is a heavy burden for homebuyers to carry. This is especially true of first home buyers buying in capitals that have experienced record growth, pushing houses outside of concession and exemption value caps.

Changes to stamp duty remain to be seen, but it will be interesting to see if removing this price barrier for homebuyers makes the process more affordable and gets them into their new home faster.

Compare home loans in Australia