House prices have surged, meaning hidden costs associated with buying a home have jumped too.
If you’re on the hunt for a new property, it’s worth checking your budget still covers the extras that can add tens of thousands to your costs.
In the past two years, the average house price in Australia has leapt more than 30 per cent.
That can have a major impact on extras, particularly fees that vary based on the value of the property.
- Among the charges to take into account so you don’t get caught short are:
- Stamp duty (sometimes called transfer duty).
- Transfer fees.
- Building and pest inspection.
- Mortgage registration and transfer fees.
- Conveyancing and legal fees.
- Loan application or establishment fee.
- Lenders mortgage insurance.
- Council rates.
Do your homework, as different State and Territory Governments levy different amounts and have varied exemptions for first-time, lower-income or off-the-plan buyers. The cost of your home will often determine whether you are eligible for discounted fees, so going over budget in a hot market can have a knock-on effect. Contact me if you’re unsure how different charges apply to your situation, and we can run a quick check on your current budget.
Stamp duty
Let’s tackle the largest fee first. What is stamp duty anyway?
In Australia, it dates back to the 1800s when governments stamped transfers of title deeds to track ownership and ensure people were buying from the rightful owner.
It’s now a significant source of revenue collected by State and Territory governments and can vary widely.
The median price of a home in Australia is $920,100 and, depending what State you’re in, stamp duty can range from $27,255 in Queensland to $50,276 in Victoria.
Many States offer exemptions or discounts for first home buyers, or owner-occupiers buying off-the-plan, but it’s usually restricted to properties priced significantly below the market average. Check what exemptions your State or Territory currently has in place, as there are substantial savings if you can make it work.
There’s always talk about doing away with stamp duty, but don’t get too excited. Taxes rarely vanish, they’re just levied in new and exciting ways. Most economists argue an annual property tax would be more stable, efficient and fair, saying stamp duty disproportionately taxes those who move house more often. The ACT is half-way through a 20-year plan to transition from stamp duty to property tax. NSW is proposing reforms on an opt-in basis with buyers able to choose between paying stamp duty or an annual land tax when they purchase a property.
Building and pest
It’s becoming more common for sellers to have their own building and pest report commissioned and made available to prospective buyers which can cut this cost. However, some buyers may still be more comfortable seeking their own.
Building and pest inspections aim to identify structural defects, damage, drainage issues and signs of infestation by problem insects such as termites.
Depending on the property, you may also consider a pool inspection (about $200) or a plumbing inspection (about $300) to run a camera down stormwater and sewerage.
Mortgage registration and transfer fee
This charge covers administrative costs to link mortgages to land titles. The aim is to prevent homeowners selling up without repaying lenders. The title transfer for a property can’t go ahead if it is still linked to a mortgage. This means the seller needs to own it outright, or have had the mortgage discharged (and, of course, paid the Government’s mortgage discharge fee).
Conveyancing and legal fees
Conveyancing is the process of preparing all legal documents involved in the purchase of a property. Conveyancing can be done by a conveyancer, solicitor or even the buyer or seller themselves if they’re looking to save money. They dot the i’s and cross the t’s to ensure the exchange of money and titles runs smoothly. The solicitor or conveyancer represents your interests, and their duties include conducting land title searches and checking details on the contract of sale to organising when payments need to be made to settle the sale.
Loan application and establishment fees
This one-off fee covers the cost of processing documents to set up a new mortgage. It may include a valuation fee for the property. Lenders will sometimes waive establishment fees.
Lenders mortgage insurance
LMI is generally applied when borrowers have less than a 20 per cent deposit. This insurance protects lenders, not borrowers, even though borrowers pay the premiums. In the event a mortgage holder defaults on a loan and the property is sold, if the sale price doesn’t cover the outstanding loan, LMI pays out the balance to lenders. Borrowers, however, may not be off the hook, as insurers can pursue them for the cash.
Single parents, first home buyers and regional buyers can by-pass LMI through the Federal Government’s Home Guarantee Scheme, but places are limited. Under the scheme – set to expand to 50,000 positions in 2022/23 – the Government acts as guarantor for borrowers with as little as five per cent deposit or, in the case of single parents, two per cent. Applications can be made through mortgage brokers, so get in touch to find out more.
Council rates
You will need to pay council rates pro-rata to cover the quarter in which you bought the home. There will also be fees for connecting utilities.
Hidden costs of home buying, using WA as an example:
| House price (based on Perth’s median house price in March 2022) | $614,300 |
| Transfer duty (formerly known as stamp duty in WA*) | $23,194 |
| Conveyancing and legal fees | $1,500 |
| Building an pest inspection | $600 |
| Mortgage registration fee | $181 |
| Transfer fee | $311 |
| Lenders mortgage insurance** (with 10 per cent deposit) | $15,000 |
| Loan application fee | $500 |
| Council rates | $500 |
| Total extras | $41,786 |
*Transfer Duty exemptions: First-home-owner exemptions are available in WA on properties less than $430,000. A concessional rate of about 20 per cent ($19.19/$100) applies from $430,000- $530,000 and above that, normal residential rates apply. A 50 per cent discount (capped at $50,000) is also available for off-the-plan properties purchased before 24 October 2024.
**LMI generally only applies to loans where borrowers have less than a 20 per cent deposit.