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Does PAYG Variation Increase Servicibilty?

Discussion in 'Property Finance' started by House, 17th Jun, 2016.

  1. House

    House Well-Known Member Premium Member

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    I've read a few SS threads on this but they're all 6-10 years old so wondering if anything has changed since then?

    Are there any lenders that would take into account an extra $100-$250/wk that could be generated by a PAYG Variation? Or do they only assess gross and net and go by that?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No.

    Because serviceability is based on your taxable income.

    edit - the above is not correct, serviceability is based on the gross income.
     
  3. Marty McDonald

    Marty McDonald Mortgage broker

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    It shouldn't but it does with lenders who just look at net income paid into your account then gross up.

    One major lender I know of will even disregard gross taxable from payslips and take the net from bank accounts (held with them or supplied from statements) and gross it up. Yep they will because they believe net into payslips is the best verification.
     
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  4. House

    House Well-Known Member Premium Member

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    This is what I read but nobody could confirm it, sounded more anecdotal. Don't know if he's on PC but one of the SS guys was saying it helped him a lot in building the portfolio so thought that was encouraging.

    I would have assumed the net income would be the better figure to go by. Who's the major lender that would accept net? And is it usually 3 months of pay slips they'll look at?
     
  5. tobe

    tobe Well-Known Member

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    Quite a few of the majors will take 3 months transaction account statements instead of payslips, they then work backwards and gross up your net income.
    That's how they verify income. But they are also going to look at the income you declare on the application form. For it to be consistent, you would have to put a higher amount there.....

    which isn't quite kosher.
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The basic answer is no:

    If the property is negatively geared, it brings forward the refund you'd get in your tax return at the end of the year. It doesn't affect how much money you get, just when you get it.

    Some lenders take include the effects of negative gearing in their calculators, some don't. Those that do use negative gearing don't care when you get the tax refund, so a PAYG variation shouldn't make any difference to them. Those that don't use negative gearing would not care about the variation anyway.

    As a result, a PAYG variation should not have any affect on your serviceability.


    There is a way to use it to your advantage however...

    I'm not aware of any lender that takes into account depreciation in their negative gearing models. Depreciation can give you a substantial cash flow benefit which is applied could make a significant difference to your serviceability, especially for investors with a large portfolio.

    Additionally some lenders will use bank statements showing regular salary deposits as verification of income. A PAYG variation can include depreciation, so this could be used as a way to include depreciation, thus higher income, thus better serviceability.


    But it's not all rainbows and unicorns...

    More and more often we're seeing people earning commissions, overtime and bonus' as part of their ongoing renumeration package. Verifying these elements of income by using simple salary deposits is difficult. If your salary varies from one month to the next, at best lenders will only use the average amount, at worst they'll use the lowest individual deposit amount.

    This could mean the lender would ignore a part of the persons ongoing salary, using a lower figure, which might reduce their serviceability overall.

    Additionally lenders will often ask for additional information rather than only relying on bank statements, such as tax assessment notices. The assessment notice won't match what the bank statement says, so they'll use the lower figure. The worst part of this is they'll use a post-gearing figure, which will mean they double dip on property holding costs. Your serviceability in this scenario is less than it actually would be had it been done using a normal payslip.


    Conclusion:

    It's possible to use a PAYG variation to trick lenders into thinking your serviceability is better than it really is. Chances are though, that you'll end up sabotaging yourself in the process.
     
    Last edited: 17th Jun, 2016
    Daniel Taborsky and House like this.
  7. tobe

    tobe Well-Known Member

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    ANZ are still averaging 3 months credits to an account. Even if the income is inconsistent. it gets around the OT and commission shading issue. I doubt this little quirk will be around much longer.
     
  8. Marty McDonald

    Marty McDonald Mortgage broker

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    which bank