Financing Australian Loan while overseas

My sister currently lives overseas and works full time.
She is looking to purchase a property back in Sydney so that she has a place for her family.

Problem is that with all these new rules, her lending is VERY limited, so I am trying to think of different ways we can help fund this purchase.

Salary is around AUD90,000.
Looking to purchase around $1m property.
Borrowing capacity for AU is around $200-$300k based on discussion with broker unfortunately
She can get her husband onto the loan, but that only increases it about $500k-$550k.
She has sufficient cashflow to sustain it as well as 20% + Stamp duty deposit.
My sister is born in Australia. Her husband holds residency in the overseas country.

Option A
Parents have available equity that can be used - ie my parents will lend, my sister will pay the interest. Intention is for a proper loan contract to be drawn up so that my sister can claim a tax deduction on the interest costs.

However my understanding is that the banks will want a declaration from her/my parents that this is a GIFT and does not need to be repaid. Therefore I assume the moment it is declared as a GIFT, then my sister won't be able to claim a tax deduction on the "GIFTED" portion.

But if she doesn't declare it as a GIFT, the banks will treat as an existing loan, thus reducing her lending capacity.

Option B
Use all of Parents Equity to purchase new home. Have private loan agreement in place.
Upon coming back to Australia, refinance the loan and pay it out.

My understanding here is that while it sounds good in theory, in practice the banks wouldn't be keen to "refinance" 100% of a private family loan.

Option C
Have parents go as servicing guarantor, I've been told that's not an option either.

===============

So are there any suggestions how I can help my sister purchase a $1m property.

 

@Rolf Latham
SGD 95,000

The property will also be a rental until she moves back to Australia
The aim would be to borrow around $700-800k.

Any suggestions on how it could get increased?

 

@Rolf Latham
There's no way around the "gift" declaration part is there?

Because I could work the with lower lending + parents lending, but needing to write it off as a gift (thus losing the negative gearing benefit to reduce the tax on rental income down to $0) wouldn't work really well.

Will all lenders require that declaration? Will the ask about how / why / where a lump sum of say $500k suddenly appeared from, even if the LVR on the property is around 20-30%?

 

Yeah you cant call it a loan and also a gift. ATO would consider it a related party sham and deny the deductions and allow you to object.

Her partner may also be a issue. Stamp duty, land tax and even FIRB rules could affect him being on title. Could add to costs or limit him on title which could affect servicing when he comes here too. The FIRB rules on co-ownership WHILE resident are still strict. Prior to arriving here its even harder.

 

The problem isn't the deposit, it's the income. By the time lenders have applied currency conversion policies and applied Australian tax rates to what is probably a tax free income, the $90k AUD is going to look more like $40k - $50k. Serviceability is going to be the challenge.

I've just spent the last 3 days trying to work out a solution for a couple in Singapore. Despite a huge income and massive savings it's a nightmare making the serviceability work. When I've questioned lenders about how they're calculating income, they tell me that it's how they've always done it - I've got dozens of applications over the years saying otherwise.

The only conclusion I can draw is that lenders simply aren't interested in anything but the very highest expat income earners.

 

I want to call it loan. But i think the banks want to see a declaration its a gift - otherwise they assess against it.

 

That sucks.
Looks like my sisters only option is to come back to Australia - find a job, buy a house, then go back to Singapore.

 

About an hour after my previous post, I did get a ray of light from a lender. Heading back into the office tomorrow to see if it works. I'll let you know.

 

If its a loan it will need to declared as a liability further impinging on serviceability.

She could also lower her purchase price in line with serviceability

Was that ANZ Pete?

 

I would love a lower price. But Sydney says no.

 

Sydney housing market is affecting the whole nation, bless em.

 

BOM/STG are pretty good with serviceability for expats. They will use 100% of income, however, they need a higher servicing ratio of 1.15. They will apply Singapore tax rates which is great as they pay bugger all tax. Only pitfall is they wont include the spouse income unless he has PR and 70% lvr.

 

Regarding this option, it could work. If the lending environment in the future will be similar to today, you should be able to find a lender that will refinance up to 80% (no lender provides 100% finance these days).

However, there are risks involved, such as: what if the property value goes down? What if your parents will want their money back but your sister won't be able to refinance or sell? These things can tear a family apart. If moving ahead, I would suggest each party having their own solicitor advising on the loan contract.

 

Have you done something similar? Or know someone who has? Which lender was it?

I think it works in theory, but in practice I don't think any lender would want to touch such an arrangement.

 

No and no. But can't see how this would be different than any cash out as far as the lender is concerned...?

 

From what I've been told is that banks don't like refinancing "private loan arrangements". Asking for $200k is very different to asking for $800k.

 

A few lenders have policy where they don't refinance private loans. Means they won't refinance solicitor loans. Refinancing cash out to give back to parents shouldn't be too big a deal. I haven't had direct experience however. End result would depend a lot on how it was presented.

 

I think that would break the chain if one was trying to maintain tax deductions.

For example:
Bank of M&D (Mum and Dad) loan money to Child to purchase their Investment Property.
Child pays interest on the loan, as its an IP, child claims a tax deduction on the interest paid.
Child subsequently gets a cash out loan to repay parents.
But as this is a new loan, the purpose of loan needs to be assessed - and paying parents back isn't an income generating event, so this new loan wouldn't be tax deductible.

Or am i missing/added something I shouldn't have?