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Finance - Dependants

Discussion in 'General Property Chat' started by Tim & Chrissy, 30th Jan, 2016.

  1. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    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.
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    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.
     
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  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    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.
     
    Last edited: 30th Jan, 2016
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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
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  5. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    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.
     
  6. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
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  8. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    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?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
  10. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Implications probably would be minor.
     
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