Servicing/income guarantee

Discussion in 'Loans & Mortgage Brokers' started by Jamesaurus, 12th Feb, 2020.

Join Australia's most dynamic and respected property investment community
  1. Jamesaurus

    Jamesaurus Well-Known Member

    Joined:
    18th Dec, 2017
    Posts:
    356
    Location:
    Canberra
    Have been doing a bit of brainstorming (also reading a few american BiggerPockets books) and wanted to put forward the following scenario in the Australian lending market:

    Scenario:
    - Person A has 20% deposit + closing costs for a $1mil property.

    - But Person A does not have the serviceability for another 800k of loans due to other outstanding investment debt.

    - Person A's parent has no debt and good serviceability.

    Q1:
    Are there lenders that would allow only person A on the title, but loan the 800k to:
    a) Person A's parent?
    b) Person A and Person A's parent?
    c) a company as trustee for a trust consisting of Person A and Person A's parent?


    Q2:
    If yes to Q1, if Person A increases income eventually to be able to service the loan independently, could a lender alter the loan to just Person A?
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    5,731
    Location:
    Gold Coast
    Q1 is a hard one

    If the non owner is a spouse, then yep - doable, all else wont fly under regulated lending because there is no financial benefit for the non owner

    Q2 - easy - refi to sole borrower

    ta
    rolf
     
    Lindsay_W likes this.
  3. Jamesaurus

    Jamesaurus Well-Known Member

    Joined:
    18th Dec, 2017
    Posts:
    356
    Location:
    Canberra
    Thanks Rolf,

    Would 1C scenario potentially get a green light to satisfy the "financial benefit" test initially, then down the track could potentially alter the trust directors and beneficiaries?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    24,337
    Location:
    Australia wide
    1 b and 1 c would be possible

    2. Depends on how it was structured. If company borrower change directors and refinance with new personal guarantee.
     
  5. albanga

    albanga Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,271
    Location:
    Melbourne
    What could be the benefit under scenario 1B?
    And I don’t think “so I can get my child out my house” will qualify :D
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    24,337
    Location:
    Australia wide
    Sorry I misread it. If the parent isn't on title unlikely to find a residential lender willing to let a parent be a co-borrower or an income guarantor.
     
  7. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    915
    Location:
    QLD
    So the only way this could work is have everyone on title with a strong exit strategy for the parents (if they have a large superannuation balance for example) and would still depend on the age of the parents, if they're over 70 it is tougher.
    This may or may not work depending on the overall borrowing capacity, as all existing debts from Person A will need to be considered in the serviceability calculations.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    24,337
    Location:
    Australia wide
    There is the bare trust arrangement - which would allow changing legal ownership without duty or CGT. But....
     
  9. Harper Lee

    Harper Lee Member

    Joined:
    14th Dec, 2018
    Posts:
    18
    Location:
    South Melbourne
    ANZ has a servicing guarantee policy. It's strict and from memory I can't remember whether it was only for PPR purposes.

    Let me know if you want me to find out some more info
     
    Terry_w likes this.
  10. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    915
    Location:
    QLD
    For parental/step-parent servicing guarantees:
    • The borrower must be in a position to meet at least 60% of the loan repayments from income that does not include indirect income from the guarantor.
    • The guarantor must complete a Statement of Position, and it must be determined that the guarantor has the capacity to meet the loan repayments without substantial hardship. This must be verified. Relevant income evidence must be collected and assessed.
    • The parent/step parent guarantor must be wealthy and sophisticated. A guarantor is deemed to be “wealthy and sophisticated” if they meet the following criteria: - A gross annual income of at least $250,000; or - Net tangible assets of at least $2.5 million.

    Hope that helps
     
    Terry_w likes this.
  11. Jamesaurus

    Jamesaurus Well-Known Member

    Joined:
    18th Dec, 2017
    Posts:
    356
    Location:
    Canberra
    Thank you to the brains trust above!

    I get what a company NTA is, but for an individual would ANZ include super in the parents NTA calc for the $2.5? (e.g. 1.6m home & 1m super = pass)
     
    Lindsay_W likes this.
  12. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    915
    Location:
    QLD
    I believe Super might fall under Fixed Tangible Assets and therefore be excluded in the total, I will confirm
     
    Jamesaurus likes this.