Finance - Dependants

Due to Chrissy owning her own business and this business being in existence less than one year she is classified as a dependent when it comes to finance. The business will likely be sold later this year when we move and another business started so her status as a dependent is unlikely to change anytime soon.

We are currently searching for a high yield IP so the property is likely to wind up slightly positive or neutral in the short term (thanks for the Residential IP Analysis spreadsheet @Rixter!)

From a serviceability perspective are we better off:

A) Putting the property in Chrissy's name (any any subsequent high yield property) so she is no longer classed as a dependent once the income reaches a certain level.

B) Putting the property in my name (if there is a decent depreciation benefit) which will further boost my income as the primary earner.

 

The short answer is that putting the property in one name or another won't make any difference, outside of the positive or negative gearing benefits, which have nothing to do with 'dependants'.


'Dependant' is really just a word the banks use when someone on the application isn't working, or when there's children or other persons relying on the income earner. The banks look at the 'family unit' and have a 'cost of living' associated with the structure of the family.

Lenders are asking for a cost of living amount, but they have minimum amounts they'll use based on the family structure. Minimum costs of living look something like this (These figures are indicative only):

Single: $1100 / mth.
Couple: $2000 / mth.
Couple 1 kid: $2500 / mth
Couple 2 kids: $2900 / mth

I'll assume that Tim & Chrissy don't have kids and Chrissy isn't working so she's essentially 'dependant' on Tim for money.

Any application will ask for 'marrital status' and the answer should be either 'Married' or 'De facto'. The system will automatically default to a living expense of a couple. Even if Tim is the only person on the application, the living expense is still assumed to be a minimum of $2000 per month because he's not single.

In some cases we've put forward single applications for one half of the couple to get the living expense down for servicing purposes. In this case, we do disclose the partner in the notes clearly show that the applicant's partner is not a 'dependant' because they're earning an income. The partner might not be on the application, but we do provide a payslip or other evidence to demonstrate this.

If Chrissy has a bunch of positively geared properties and earns an income from those, then those properties would need to be disclosed on the application along with the rent and associated lending. By the time all that goes through the banks servicing calculators, odds are it won't be positively geared any more and will have a negative servicing effect on the application. Regardless of how the ownership of the new property is going to go, these probably need to be disclosed anyway.

 

Note in my previous post that the assumed cost of living expense of a couple is less than double that of a single person. Fairly reasonable give that two people don't use double the electricity of a single, etc.

There's continually claims and assumptions that two people investing separately will have better serviceability than a couple. This is not really true. The lower cost of living expense for a couple means that when it's all said and done, a couple can borrow about $300k - $400k more than the aggregate of two singles.

There's lots of good reasons to invest separately. Asset protection, land tax minimisation, gearing strategies, inherritance, to name but a few. Serviceability isn't one of them. At the end of the day couples can borrow more if they work together.

If people want to employ strategies involving asset division, my all means go for it, but when servicing gets really tight, joint finance will make things go just a little further.

 

Peter is right. you will still be classed as a couple for servicing. Where something is close to the line you may be able to argue to get you assessed as a single where the spouse is self supporting, but this is generally difficult to achieve.

Depreciation is not taken into account for serviceability but buying in 1 name instead of 2 can assist serviceability by having only one of you on loans or both - at your choosing.

 

Thanks Peter.

We are a married couple with 4 dependent children, serviceability isn't at it's limit yet but it's approaching so I'm trying to find a strategy to stretch it a bit further.

 

Okay so if we purchase just in my name serviceability will be better because I am the primary income earner?

 

2 ways to look at this:
Now and in the future.

It might be good to get one on your spouses name and then start depositing into the offset account attached. it all depends..

There are many strategies you can look at. e.g.


You could look at buy in her name and then having her sell the property in a few years with you then borrowing money off her at market rates and buying in your name. This will help shift income over to her.

 

Thanks for the great explanation @Peter_Tersteeg. As a hypothetical, if someone had a partner and he/she was unemployed and they had to support their partner financially - if you told the lender that you were single, do banks go to any great length to verify this?
I'm assuming you would be able to get away with this quite easily?

I know it's highly unethical, but wondering if it's easily done?

 

Generally no way for a lender to verify this unless both names appear on medicare cards or other documents submitted - or previous applications for finance.

 

Thanks @Terry_w.
I'm assuming the implications if caught, would be quite severe?
Would they bank repo your property?

 

Implications probably would be minor.

 

I know this is an old post but I can see that Peter and Terry are still active. My wife and I have separate property investment portfolios, it is a second marriage for me so I was on my way before I met her and she had capacity to invest (I had maxed out my serviceability). In the past, I had to sign a statutory declaration that I support myself and she was able to invest as single but the bank(Bankwest) has changed their policy and we are to be assessed as a couple on new loans although the bank BDM okayed this in the past so it was outside policy. She owns her properties 100% we have no shared loans. Are there any banks/non-banks that allow adults to invest separately or do we need to be divorced on paper to be treated as individual adults.

 

All banks allow married couples to invest separately.

 

but they treat the living expenses as a couple, not as a single.

 

Ah that aspect, yes you are a couple so that would be the case. Not sure of any lender that would treat you otherwise, but you might be able to make your case with some.

 

Yes, it's a lousy situation. Unfortunately not much we can do about it. There are some lenders where you can get some consideration in certain circumstances, but nobody's got an overriding policy on this.

 

It's extremely frustrating policy which I have brought up a few times with CBA, at this stage they don't believe there are many cases where it impacts to warrant changing of the policy.
I know they recently brought out a policy which allows you to portion debt on joint loans as long as they're not spouses. So loans setup with friends, JV previously 100% debt and only 50% rent was taken. Now can be declared % of ownership for the debt.
But there haven't been too many that have used this new policy, IMO I don't think many people know about this policy change or put it in the too hard basket with extra documents required.

 

Question: if you pay child support for children who spend 0% time (living) with you, are you considered to have 'dependants'?

 

Yes

 

Worth noting that the original posts were written over 3.5 years ago. Whilst the principals are the same, lenders are treating living expenses very differently today and they're going out of their way to check those living expenses.

It's no longer a simple single, couple, kids equation. Family structure is still a consideration, but income and location are also variables.

It's also more difficult to state that you're single (but actually married) or don't have kids (when you do) and get away with it. Lenders want to review bank statements and they're doing a detailed analysis.

I've had a lender question me about a transaction related to an ultrasound when the couple stated they don't have kids. Technically the couple didn't have any kids, but she was pregnant so the bank wanted to assess the application as if the baby was already here, then they threw in the twist of maternity leave.

There's been countless posts about this over the last few years so I think most people are already on top of it, but always happy to take a phone call or two if people want to run through some ideas.