OO versus IP

Uhm in the past it never mattered if your loan was classed as OO or IP as interest rates were the same.

What happens when people get mortgages at sweetheart rates as OO but then use them as IP's.

Seems like its not in the customers interest to tell......as their mortgage will go up.
Seems like its not in the banks interest to ask.....as they get better rating from APRA.
Seems like its not in the ATO's interest to tell......they just care if you are paying taxes correctly
Seems like its not in the APRA's interest to query......as they don't have access to granular data

So apart from legit investors getting screwed out of deals because competitors can outbid them......what gives?

And yes its rampant.......just found out a friend has loans between her and defacto at OO rates with 3 different banks.....

So are banks just turning a blind eye or could their rates shoot up if found out?

 

So someone else is getting an advantage to save some money, and since you are unable to get that same advantage, you want to pull down that other person to your situation even though it won't actually help you or anyone else?

And no they can not borrow more, they can borrow less because the bank does not take into account rental income when calculating how much they can borrow for an OO.

 

It seems you are right.

btw, you mean loan, not mortgage.

 

Not jealous, just curious whats going to go "bump" in the night.

And yes you are right but I also don't cheat on taxes and pay the correct amount to the cent. Well apart from "out of state sales tax purchases to NY state"......but realistically who the heck pays them

 

I was at a breakfast with a Big 4 head of third party distribution a couple weeks back - he was saying they are aware of this and are looking at the easiest way for them to investigate whether people are still using properties as PPOR's or IP's.

Interestingly they even hinted at investigating people who are still at home with parents buying IP's as this seemed "suspicious". That part was a bit silly, as I've written an extensive number of deals with this structure - as it gives younger people a chance of getting into the market earlier in their working life.

 

I get the impression that when you say "legit investors getting screwed", "its rampant", you sound like it is somehow wrong and should be stopped. And you are painting yourself as doing everything right by saying you don't cheat on your taxes.

In response, firstly I would say that there is a moral side and a legal side and they are entirely different concepts.

Take the 6 year rule which is meant to help people not have a big CGT bill when they temporarily go to work in a different location for a period of time. How many people on this forum use that as a loophole and not in the way it is actually intended? They are avoiding tax. It is completely legal. But is it really moral or fair to not pay taxes that is to be used for the community? Not one person on this forum will criticise this law. Why? Because they can take advantage of this unfairness. Yet they will complain about other loopholes that they can not take advantage of and say how unfair it is.

So my question is - do you think it is morally wrong (due to unfairness or doing harm to people) or do you think it is legally wrong?

Legally I am not all that interested in, because people are taking a risk and there is a structure set up in society so that some percentage of the time (ie when they are caught) they will be punished and they will pay the price. Also saying something is legal does not make it "right". Tax avoidance, in the example above is legal, but that does not necessarily make it "right".

I also get the impression that your problem is the fairness/moral part rather than the legal part. However, morally I don't think you have a leg to stand on here. Life is inherently unfair. You have certain advantages that others do not, and others have certain advantages that you do not. It is unfair that you grew up in a country with amazing opportunities whereas someone else is born into a society where since their family is poor, they have no chance for an education or any way to improve their life. I see these people every day jammed with 20 people standing up in a pickup being taken to a building site to work for minimum wage just to get enough money so they can eat and have to do it all again tomorrow (this is not in Aus). By your same frustration of unfairness, you should have your house, car, and comfortable shoes taken away from you to make it more fair to those who don't have what you have. No one will benefit from it of course, but it will remove the advantage that you have that the other person does not have.

Appreciate that you have lots of advantages that others people don't have and appreciate that other people can't just come and take those from you, and realise that by the same token, if someone else has an advantage in a different aspect that does not do harm to you or anyone else, leave them alone and don't try to pull other people down if they are not harming anyone.

 

Just trying to understand the "rules of the game" Anthony

 

Tax avoidance is NEVER legal, you can minimise tax but avoiding tax is illegal in all form
you can avoid tax and not get caught until such time they caught up with you but it never legal.

Panama papers, Paul Hogan etc... got away as long as the ATO haven't caught up to them

 

Keep in mind that the banks have matrix with APRA around the number of investment vs owner occupier loans they can hold. APRA has no problem if they have a huge amount of OO loans in their book, the problem is with the level of investment loans.

A case could be made that it's in the banks interest to not know that what they thing are owner occupied properties are in fact investments.


It would be very easy for the banks to narrow down which properties are owner occupied and which are investment. They simply need to verify the customers mailing address against the actual address of the properties.

 

Can set up an Auspost redirect? And nowadays most people opt for online communications

 

Plenty of easy ways to circumvent this, but it would likely catch at least 80% out. It's also very simply for the banks to run a report on this. It's saying something that they haven't done it yet.

 

The bank can send a letter which is marked "not to be redirected"

If that letter gets sent back to bank unclaimed then alarm bells will start ringing. The bank will send out a hit squad to stake out the property lol.

One way around this is to only lease out the property to tenants who bear a striking resemblance to the landlord. That way when the bank spies on the tenant and compares with the file photo they'll say "yeah that looks like the borrower, all good, case closed".

 

If you have multiple OO loans, then how can you claim tax deductions on places you theoretically live in?

 

If you have a loan that relates to the production of income the interest is deductible whatever the loan product is.

 

There would be people who also have IP loans but living in the home too. The world is not perfect

Moving is hard unless you live from a suitcase, seeing not that many people have more than one IP, just how much of a problem could this be ? (i.e....not much is likely)