Hi everyone,
I am in the middle of trying to organise all the finance and legal aspects of my first property. I am 19 so have to use my parents collateral to provide security for the deposit on the house.
My problem is, while the loan on the property must be with the same lender that my parents are with (it’s hard to cross collateralise across lenders apparently), the ANZ have told us that if we are going to have three names on the loan, we need to have three names on the property title as well. That’s fine, but my solicitor then told me that we can do a 98/1/1 split on the ownership – a pain for accounting, but still better tax wise for me (im in the lowest tax bracket and the house is positive cashflow). I then approached the ANZ and they have told me that the title of the property must be in a 1/3 split. That sux, because both my parents are in the top tax bracket, and I don’t want to pay tax on 2/3 of the profit!
My question is, can we use a trust structure to purchase the property somehow so that my parents are the trustees but I am the beneficiary and I can claim all the income on my tax return??
Or does anyone have any better suggestions to get around this problem?
Thanks!
-NickHi Walkernick,
Congratulations in getting into investing. Our daughter bought her first property at age 20, she was on a low income, so both the loan and property was in her and and her father’s name. She lived in the unit. When a couple of years later she rented it, it was OK accountancy wise, for her to claim all for tax purposes, as she was totally paying the loan, etc. After a refinance, it is now all in her name, loan and property.Last year at 25, she purchased another unit herself, in Sydney where she lives.
Six months ago, we purchased a unit up north in her name and her father’s name again, but the loan is in my name and her fathers name. No problem at all with the lender, a credit union. Maybe, make a few more enquiries. Anna
Hi Walkernick,
The problem you are encountering is callled a third party mortgage. A few years ago this was fairly common practice, but in more recent times, institutions have moved away from them.
If you are responsible for the loan repayments institutions also want to see you have your fair share of the ownership of the property.
The crackdown arose after a court case where a bank (ANZ actually I think [?]) tried to repossess a Dad and Mum’s house that was put up as security for their son’s loan. Being a good son he purchased fast cars and lived life to the full and defaulted on the mortgage payments.(please note that this story has been embelished some what
])The bank, as a condition of the loan (and after the parents were unable to handle the burden themselves) went in for the kill.
The final decision of the court was that the parents were not receiving any tangible benefit from the son purchasing the property. I should mention that they had no ownership and were guarantors of their sons loan. They did not own the property that secured the deliquent loan, and their only reason for the loan was through parental love.
There was a lack of ‘consideration’ in the contract for the parents.
The court held that the parents were not bound by the contract and therefore their security should not be lost as a result.
.
As a diary note for ANZ introducers there is a question that has to be answered:
DO ALL THE CUSTOMERS CLEARLY BENEFIT FROM TAKING OUT THIS LOAN?
This may be hard to justify if some of the parties are taking on equal liability and only 1% ownership.
You will find that a lot of institutions are asking for equal share in ownership for taking on repayment responsibilities. As Annaw has mentioned below though, you can still find a few who are happy to do it.
In terms of a using a trust to solve your ANZ lending problem, you may be back in the same boat. They will ask for a copy of the Trust Deed and if the Trust is setup to achieve the same result, they will say no.
walkernick, if you are looking for a potential solution to the problem (other than finding an institution that will do 3rd party mortgages) one comes to mind.
If you only need assistance with the deposit, and you borrowing capacity is fine, then you could ask your parents for a non-refundable gift for the deposit you are lacking. They may be able to use redraw or top up their own loan to do this.
The deposit would have to be at least a 10% deposit and up to a 20% deposit depending on the institution that you talk to for your loan. This is because they will clasify the money as non-genuine savings.
The result will be a house in your name solely and the mortgage in your name solely. This is assuming your parents are very generous!
Hope this is of some help,
Cheers and happy investing (and money raising!),
Nathan. [
]P.S As an after thought, if this is your first property, the suggestion I have will alow you to obtain the FHOGs if you are eligable.
])
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