Changing from IP to PPOR

Hello,

Just a question about my borrowing capacity and whether there are issues changing a house from IP to PPOR.

My situation

My mortgage broker has advised my borrowing capacity would allow me to borrow:
1) about $420k for a owner occupier, or
2) about $600k for IP.

I currently live at home. I have one IP purchased a couple of years ago for about $700k and it's now worth well over $1.1 million. I'm keen not to sell this IP as I think it's quite a good investment. I have about $170k in savings.

I would like to eventually own my own home (owner occupier) and I'm keen for it to be a house. I like the southside of Brisbane, preferably somewhere close-ish to the bikeway.

I don't have a specific timeframe, but within the next 1 to 3 years would be nice. Happy to continue living at home in the short term.

My thoughts

Given my limited borrowing capacity for a owner occupier and the latest boom in house prices, I'm thinking whether one option would be to:
1) Purchase another house as an IP
2) Allow for it to be tenanted (eg 6 to 12 months)
3) Ask tenants to leave and move in myself as an owner occupier

Questions

Are there are any issues in terms of converting a property from IP to PPOR? Will a bank not allow this due to my limited borrowing capacity?

Any issues I've missed from a tax perspective or you think I should consider?

Thanks,

Sheldrick

 

Yes most lenders would change it to owner occ rates once you move in.

Lots of tax issues - it can never be exempt from CGT.

 

What does your broker say about your idea?

 

Generally there's no problems with this, as long as you have rates to confirm yoire living there.
But this should be ran through your broker.

 

I assume you are proposing this option, so that you are able to purchase a home that you would be happy to live in. While this is one way to potentially make this happen, you might find that when you are ready to move in, you can't afford to or would have to make some sacrifices to make it work.

The servicing calculations for a $420k O/O loan will be using a rate of about 5.30%, which would have repayments of $2,333 per month. This is the maximum amount the lender thinks you can afford to pay towards repayments each month.

The servicing calculations for a $600k investment loan will be using a rate of about 5.60%, which would have repayments of $3,445 per month and the only way the lender thinks you can afford the higher loan is because they are including rental income in the calculations.

If you get the $600k loan and your salary, expenses and the interest rates haven't changed by the time you are ready to move in, you would convert the loan over to O/O rates but your minimum repayments would already be close to the maximum the lender thinks you can afford.

e.g. Repayments on a $420k loan at 2.29% would be $1,615 per month, while repayments on a $600k loan at 2.29% would be $2,306

As it is highly likely that there will be interest rate increases and further increases to the cost of living over the next 12 months, you might find that to be able to comfortably move in to the property, you will either need to get a decent pay rise, a housemate or you could be forced to sell your investment property.

 

Haven't discusses with my broker yet. Still early stages.

 

This is great, I hadn't considered this aspect. Thank you so much. I have some inherent bias as I save alot but I will need to do some calculations just to be sure.

I was also considering purchasing a place which is good for dual living. Then renting the other half ... but I guess there's cgt implications...

 

How come it can never be exempt from cgt? Eg if I rent it out for the first 12 months, then move in as an occupier

 

It won't be your main residence until you move in.

 

I'd ask them, never too early to ask.