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Bridging finance loophole??

Discussion in 'General Property Chat' started by T&L, 4th Oct, 2016.

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  1. T&L

    T&L Member

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    Hi

    My partner and I want to purchase a house but have been rejected by the lender due to
    serviceability shortfall.

    We want to sell our current house and buy a
    house which is approx double the value of the
    House we live in. Our incomes are quite good, we have one young child and a small investment portfolio. Our lender said due to the tightening of lending by the banking regulators they cannot lend us the money, however we have done our calculations and we can easily afford the repayments even factoring in interest at 7%.

    We think we have found a way around this:

    We want to apply for a bridging loan with the proviso of renting out the new property we want to buy and selling the propery we currently live in. The bank has said this may help us to get our loan through as it will be an investment loan instead. We have told the lender that we intend to move in with my parents. But instead of moving in with my parents we plan to settle on the new purchase and rent it out for six months. We also plan to delay the sale of our current place so that it will settle after the six month lease is finished in the new place (bank have allowed 12 months for the sale of our current place). This would mean we could move straight from our current place into the new place.

    Question is - does the bank check or care of/when you put your current house on the market for sale if you have been given a loan under the proviso that you will sell it?

    Also - will they check or care if the new property ceases to be an investment property after six months?

    Thanks
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. NO

    2. Maybe - but by that time they will be stuck with you.
     
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  3. T&L

    T&L Member

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    Thanks

    Regarding your response to question 2, do you know of any possible consequences for us if bank finds out?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Unlikely to be any I think
     
  5. T&L

    T&L Member

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    Lastly can I only rent it out for 6 months before moving in, this would change it from its
    Original purpose as an investment loan/property to a ppor?
     
  6. dabbler

    dabbler Well-Known Member

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    People can change minds, how would a bank try and force you to stay with inlaws for eg if it means you would split and sell everything.

    If you keep your home over 6 months tax position changes too.
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    there are lenders that do bridge on END servicing ...........

    ta

    rolf
     
  8. T&L

    T&L Member

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    Hi

    Can you please further explain what you mean I don't quite understand.

    Thanks
     
  9. T&L

    T&L Member

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    What is bridge on end servicing???
     
  10. dabbler

    dabbler Well-Known Member

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    Which part ? The first should be self explanatory.

    The second is if you want the new PPOR to be CGT free, you need to sell the existing one within 6 months.
     
  11. T&L

    T&L Member

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    Thanks everyone for your help, if anyone has any other contributions your opinions are very welcome, thanks again!

    T&L
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not sure what you mean. You can rent it out as long as you like, but there are various consequences.
     
  13. jrc

    jrc Well-Known Member

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    Maybe you should consider your appication to the bank as for an investment property. Suddenly after settlement you change your minds and move into it and rentout the original property.
     
  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I would get a broker to see if there's a better option with a different lender - one banks no is another banks yes.There are also different ways to present the loan that can increase servicing and negate the need for a bridge at all.
     
  15. T&L

    T&L Member

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    Sorry I didn't make that clear, what I mean is can I only rent it for 6 months then turn it into my ppor? Without any consequences from my bank because when they sign my up for the loan they would be doing it with the intention of it being a rental property for longer then 6 month presumably.
     
  16. albanga

    albanga Well-Known Member

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    I agree with Jess, just because YOUR bank said no doesn't mean it is a No. Speak to a broker.

    Secondly, ofcourse you can do this, thousands of people do, they cannot service as PPOR so they purchase as an IP, use the rental to pass servicing and then happen to change their minds and move in. The banks should crack down on this but I imagine it is in the too hard basket.

    Thirdly you will be buying your PPOR as an investment so will pay for that in higher rates. When you do sell your current home, sure you can do a new application but you will be paying a higher loan for a while.
    So why not do it in reverse and say your moving into the new PPOR and renting out current one?
    Perhaps your lender already tried this and it failed servicing but again see a broker, they can probably squeeze a higher rental return than the lender is using.

    Bridging IMO is just a bad idea. Sounds good in theory but what happens if the market turns? Your holding a house with a 12 month deadline. What happens if this deadline is fast approaching and others in your suburb are discounting? What do you do? You need to sell it for less than its worth! Your selling in a future market not today's.

    Finally.....see a broker :)
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes. But there are consequences. You will have to try to get them to change the rate to owner occ. There are also tax consequences to consider.
     
  18. T&L

    T&L Member

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    Thanks for your help
     
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    it means the lender looks at the debt when you have sold the current property ie end debt, versus carrying all the property loans AKA peak debt.

    ta

    rolf