Mortgage Brokers - single or joint names?

Hi guys, outside of tax considerations, if you knew a couple had a goal of buying multiple properties together, do you recommend your clients put properties in one person's name only?
Does that make more sense for future loan serviceability?

 

single

 

With two people jointly on loans the total serviceability is greater than the sum of two people borrowing as individuals. The reason for this is living expenses are considered to be lower for couple than they are for the aggregate of two single people. Lower expenses means higher affordability.

It's been a while since I modeled this, but the last time I did, the difference was about $400,000 in serviceability.

There's lots of good reasons to do things separately however. You could approach things separately at first, then as your individual servicing approaches a limit, join forces to stretch it a little further.

 

In order to maximise serviceability, wouldn't you then want to maximise joint debt and minimise individual debt? Or is serviceability treated somewhat separately between different combinations of parties (person 1, person 2, couple 1+2)

 

Specifically 1 name on contract, 2 people on loan?

 

It does get you more combined, but the trouble is you will be stuck in the rut of all loans jointly. You won't then be able to use many of the strategies I have been writing about.

I favour one name on title and then individual loans. Where one doesn't service you can still add the other spouse to the loan if and when needed - and then take them off later as circumstances change.

 

Contract doesn't matter, it is title that counts. All on title must be on the loan or guarantors to the loan. But one on title allows one on the loan or 2 on the loan (spouses) - its a choice.

 

@chylld it doesn't really matter at that point. Some lenders will distinguish between joint or individual loans and ownership in their calculators when they're determining the gearing effects. This can change the outcome somewhat. Many no longer use negative gearing in their calculations. Even when it is used, it often only has a negligible effect (and that changes as incomes and rents change over time).

There's plenty of good reasons to have different ownership and borrowing arrangements for both tax and legal reasons, but purely for finance purposes this doesn't make much difference. Jointly will get more serviceability.

I should add that I generally don't think buying with anyone other than your long term partner is a good idea. Once you commit to doing things jointly, it's forever.

 

How easy/ difficult is it to take one name off the loan if the property is in one name?

 

Usually requires a full application.

 

Yep wish I read about those before... all our properties are jointly owned and financed.

Is that because the cost of selling one party's share to the other has stamp duty / CGT implications that outweigh the benefits?
edit: just saw your reply to EN710. Taking one name off a loan where the property is in two names would be even worse?

 

Very easy - if services

 

Would be impossible. All names on title must be on the loan or guarantors.

The only way to do it would be to transfer title.

 

Perhaps look into a spousal sale strategy - use proceeds to pay off non deductible debt too.

 

Sounds like something I definitely need to look into. If only there were a Terry's Tax Tip on it.....

 

Theres more tax and legal tips on spouse strategies coming soon

 

I'm referring to the fact that if you buy things jointly and then want to get finance on another property as a single, you'll be fully liable for all the joint loans but only entitled to a percentage of the income. This is a great way to destroy serviceability unless you continue to do things jointly.

Hence my suggestion that buying with extended family and friends generally isn't a good idea as it restricts what you can later do on your own.

Changing ownership certainly does have stamp duty and CGT implications. This needs to be assessed on a case by case basis.

 

Thanks Peter. If a couple continues to do things jointly and buys another property jointly, how will their serviceability as a couple be assessed from a liability perspective? Will their existing joint loans be assessed once each for the couple?

i.e. existing properties will have both full rental income and full liability included in the assessment? (as opposed to going single ownership after joint, which is half rental plus full liability)

 

This is more specifically what I was talking about.
Once you have a couple in joint names, is it much of a muchness for serviceability as far as getting another in 1 name only?

 

The problem will be that it may not service in 1 name only for subsequent loans. You may be trapped into continually getting joint loans.