Stamp duty scrapped for NSW first home buyers under $650,000 from July 1

First home buyers in New South Wales will be able to buy property up to $650,000 without having to pay stamp duty.

The policy, which will apply to new and existing homes, will start from July 1 in an attempt to combat the housing affordability issue by the NSW State Government.

The cap had previously been set at $550,000 for first home buyers.

Homes up to $800,000 will also see a discounted stamp duty.

Stamp duty charged on lenders' motgage insurance will also be scrapped by the government which will save around $2,900 on an $800,000 home.

Up to $34,360 will be saved under the package, according to the government.

The move comes despite a warning from the NSW Government property adviser, the former Reserve Bank governor Glenn Stevens, who said in his report to the Premier that he hasn't been a "big fan" of demand side support for first home buyers.

But he suggested the real value of the support has declined as dwelling prices had risen, which suggested to Stevens that thresholds could be reconsidered.

"Done carefully, the extent of help could perhaps be moved up, carefully, to recognise the price rises that have already occurred, without this measure itself materially contributing to further upward pressure on prices," he said.

"The more that additional generosity to some is combined with a tightening up in some other area - such as removing the grant given to anyone buying a new home - such that the changes are more or less budget neutral, the more easily it can be defended against the criticism that it is self-defeating by inflating prices."

Stevens said the government could avoid putting upward pressure on house prices if the support for first home buyers increased in line with the rise in house prices.