Adding a tenant in common to increase serviceability

Hi All,

I have a IP which has some equity and want draw on the loan to use on my next purchase. The bank I am with is saying that i cant draw the loan down any more because i don't have the income to service it. I am on quite a good interest rate and don't want to look for another bank that will refinance and let me borrow more.
This loan is under my name and was thinking to add my partner onto the loan to increase serviceability.
Does anyone have any advise whether this is a good idea or not ?

Thanks.

 

What state is the property in?

In some states, adding partner to property title can have some other ramifications.

 

Hi D.T

appreciate your response. The property is in Sydney and it is positively geared which is why I'm a little confused as to why the bank will not let me draw money.

 

Positively geared doesn't mean much - banks are conservative these days. They'll take X% off of the rent to allow for expenses, add a few % to all your loans to allow for rises, and other sorts of things.

 

It may be possible to get a joint loan with your partner without adding the partner to the title of the property. It's rarely a problem is you're married and many lenders would also recognise a de-facto partner in this capacity.

Positive geared on your tax return is not the same as meeting the lenders credit criteria. Lenders also take into consideration a lot more variables than the simple cash flow position of the property when they assess a loan application.

 

That sounds a lot easier getting a joint loan without changing the title.

The % i tell the bank my partner owns would also vary the amount of serviceable the bank would think we are? With getting a joint loan from the bank and saying she owns 50% of the property but claiming at tax time she only has a 1% share, could this be seen as fraud?

 

Not necessary to move banks - if buy partner you mean spouse. It may or may not be a good idea, depending on the situation.

It may also be possible to just apply for a new loan in both names and keep the existing loan as is.

Transferring title will be complicated with stamp duty and CGT and will necessitate a discharge of mortgage and probably new loans with new rates.

 

Yes, and it wouldn't work anyway as the bank would see ownership splits.

 

Thanks Terry,

Very helpful.

So it sounds like a toss up between becoming serviceable and letting the spouse take half the tax benefits.

 

You don't need to change the ownership of the property to have your partner on a loan and the bank doesn't ask who's on the title because they already know (they are holding the title as security for the loan).

The names on the loan usually don't directly affect the tax implications. Tax is generally affected by what the money is actually used for. Specific tax advice would be required to give guidance on this.

 

Hi Peter,

Thanks for your comments.

 

Are you saying it is possible if a property is owned in a solo name, that you can then end up adding a spouse to the loan without having to affect the property title ownership?

E.g. buy a property in a single name, loan in single name, later change the loan to be in joint names but leave the property owned by the single name?

Interesting..

 

Yes

 

Forgive me, I'm not a lawyer but essentially what you're doing in the situation is ceding half of your ownership of the property and all the benefits and pitfalls that go with it. That being the case the bank recognises that half of the debt belongs to your partner, half of the income and tax benefits as well and if it hits the fan then half of the sale proceeds as well.

 

In this case as they are spouses no transfer is needed, but if the example was that a friend, parent or sibling is needed to come in for servicing to reduce CGT and stamp duty a small % would be transferred. Depending on the bank this may be 1% or may need to be 10%. Later on this could even be transferred back later on when the original sole owner's serviceability improves enough.

But the friend or relative would be taking on a large burden because they would be liable for the whole debt.