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Car Lease / Salary Sacrifce Vehicle

Discussion in 'Property Finance' started by Mr Dabolina, 13th Feb, 2016.

  1. Mr Dabolina

    Mr Dabolina Well-Known Member

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    Has anyone else had issues with having a salary sacrifice or car lease? i.e I pay an amount pre and post tax and Have a car plus all expenses including fuel covered.

    I've come across an issue a number of times now where banks don't look at my gross income but net and then on top of that include car expenses as part of the household expenditure calculations so effectively, double dipping.

    Although I've benefited from bringing my pre tax dollars down I made a decision last year to no long go down this path and bought a car instead (no lease) and this issue should no longer present itself however, I am interested if any of you guys have come across a similar situation with lending institutes and steps your clients may have taken to mitigate this issue.

    @Steven Ryan @Redom @Peter_Tersteeg @Jess Peletier
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It can be terrible for servicing, for sure - like you say, double dipping on expenses. It's more education than remedy as once they're in place they can be very expensive to break, so general rule would be if you want to borrow, don't lease a car if servicing is tight!
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    It might be good from a tax perspective, but for servicing, it's terrible. If you're going to aggressively borrow money, don't go down this path.

    To expand on Jess' comment of double dipping...

    Lenders have a 'cost of living' expense in their calculations. Part of this expense assumes transport including fuel and maintenance. When you take a novated lease, you pay an amount which covers not only the car lease, but all the running costs.

    This amount is deducted from your income in the lenders calculations, but they don't add back the car running costs to your living expenses. Effectively they assume you're paying the car running costs twice.

    This means that lenders assume you have less disposable income, hence your borrowing power is also reduced.

    Just to add a little more pain, some lenders don't give consideration to the tax free portion of the lease, further reducing your borrowing power.
     
  4. Rugrat

    Rugrat Well-Known Member

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    We have run into that problem a couple of times. Sometimes they can play around with the figures a bit to try and take that into account, but it just depends on the lender at the time. Seems to be more of an issue now, then it was for us before all these loan servicibility changes.
    Just another flaw in the system.
     
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  5. Redom

    Redom Mortgage Broker Business Member

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    As others have explained. :)

    If the minimum living expenses is 2k p/m and you spend 15k p/m on living, its not really double dipping, but if relying on minimum/below minimum that banks use, it definitely hurts serviceability needlessly.

    A quick back of the envelope calc:
    Lease cost: $1000 p/m vs Personal loan cost: $600 p/m.

    The extra $400 p/m added to your living expenses equates to roughly 60k in borrowing power impact with an individual lender.

    Cheers,
    Redom
     
    Mr Dabolina likes this.
  6. jins13

    jins13 Well-Known Member

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    I was on a salary package for a vehicle (4 year term) and I will never consider it again. Almost like breaking a fixed loan before the end of the term (if you want to get out early) and really impacted on my serviceability.
     
  7. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Others have covered it. Nothing to add....except for anyone else reading this. Consider a novated lease carefully if you intend on buying property/building a portfolio.
     
    Mr Dabolina likes this.
  8. CaliforniaPoppy

    CaliforniaPoppy New Member

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    Well this totally just answered my question. Thanks guys :)
     
  9. wombat777

    wombat777 Well-Known Member Premium Member

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    Ditching the car lease (or avoiding one in the first place) is one of the best things you can do to improve serviceability. I paid out my lease earlier in the year and it put me on the path for buying my second IP.
     
  10. albanga

    albanga Well-Known Member

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    Some lenders do only take the finance portion of the lease into consideration though.
    I know BOM and I believe Bankwest have this as policy. If you provide them a breakdown of your lease payments and highlight the actual finance component then that is all they will use for servicing.
    I think it depends on how cluey your assessor is as well TBH.