Hey All, First post here! Have been reading for a while and some really great advice. So my situtation is this; I am an Australian living in London and have been here for about 2 years. When my fiancee and I moved here we left our 1br apartment in Melbourne and started renting it out.. this has worked out great and lucky for us we have been able to generate about 60k worth of estimated equity in the property, and have had some great tenants. We plan on moving back to Melbourne in November but want to buy another property prior to moving back so that we can move straight back into it on our return, whilst keeping our other apartment as an IP. The property we are looking at is around $450k, we have about $25kcash, and as I said earlier an estimated $60k in equity.. What I want to know is, how can I use my equity as leverage on a new property? Would it be better to remortgage the property to release the equity, or take out a separate equity loan altogether I look forward to hearing your responses, thanks all!
Hi, Who is the current mortgage with? What is the loan size and how much is the property worth? You don't have much of a deposit and what about employment back in Melbourne? The Lenders want to see stable work and some savings history. I personally would move back and rent for a while. Cheers
Current mortgage is with FirtMac.. Existing property is worth approx 300k. Employment back in Melbourne is guaranteed, so thats not an issue, I was relocated from Melbourne to London, and will be employed by the same employer on my return. I have been dealing with ANZ expat mortgages while over here, and they seem confident that they will lend the money.. but my only concern is the deposit... how would I use my equity as leverage to purchase the 2nd property?
Brendan You could ask your current lender to revalue your IP and let you borrow up to 80% of it's value. Another way would be to refinance the loan and move it to another lender and again borrow 80% of $300K. Some lenders will let you borrow more than 80% without the need to pay LMI I believe Westpac will do this but I don't know if they will do it for a 1bed unit. Another option would be to pay some LMI to allow you to borrow more and release a greater amount of the IP equity. All this ofcource depends on your ability to repay the loan and this makes me ask another question. Why move into a place with a big mortgage? To me it seems more sensible to rent for a while or to move into your unit so you take advantage of the tax deductibility of the bigger loan. The new loan will be costing you $39K in interest and another $3k in rates and maintenance per year. The old place assuming your loan is $200K will be costing you $17K plus $3K in rates etc per year. By living in the new place you will have $23K of non deductible losses. To me it makes sense to have it rented out and stay in the unit or to rent elsewhere. Cheers
Hey Bill, Thanks for the detailed reply, I guess the reason we want to move into the bigger place as we don't want to live in a 1br unit anymore.. we want to move up a notch into a bigger house, you know.. the 'Australian dream'.. After living in a 1br place in London its time for a bit of space, plus we want to start a family and will need the extra bedroom. So in regards to deductible losses, since we have been away 2-3 years, can we claim the accumulated deductible losses on our return, or even whilst we are away? Is it a better idea to buy the property as an Investment property initially, or wait until our return and purchase it on a home loan rather than an investment loan.. what would be the pro's/cons of both scenarios? Sorry about all the q's, I am just trying get my head around using equity etc..
Brendan, Have you done tax returns for the years you've been away? If not you will probably have to do them to claim any losses but I don't know if there are any other implications. Talk to an accountant when you get back. IMO it's best to wait till you are back. By being here you will be able to see what you are buying and you will have the ability to negotiate and get a better deal on your purchase and you will also have more lenders to choose from so you will get a better deal on the new loan. Whether you should buy it as an IP or a PPOR or whether you should combine the 2 under some loan package, really depends on your individual circumstances. If your existing loan is less than $250K you probably aren't getting any discount on your interest. Depending on the loan type you currently have, you could perhaps extend the 1st loan and combine the 2 loans (1st IP and the house) and get a 0.7% discount. This would mean that the 2 will be crosscol so the same bank will have control of both of them and if you default on 1 they will sell both but a 0.7% discount on the 2 loans ($450K+$200K) is a considerable amount of money. Many people will tell you to keep your properties separate. I'd say it depends. Have a talk to firstmac and see what they can offer you. I had a look at the firstmac website and I couldn't see their interest rates. I don't know what interest rate you are getting but see what they have to offer. Sometimes it's better to refinance and to go with another lender but you should consider that small lenders often have very high exit fees. Cheers
Hey Bill, thanks thats great info. We have weighed out the pros and cons, and believe our best option as you said is to wait until we are back, since there are only 1-2 places here that deal with expat mortgages, there is no competition, so they aren't really giving us what we want to hear. I think if we are on the ground in oz we can speak to some brokers and advisers we will get a better result, than trying to do things from over here, plus lets see what happens to the economy over the next 6 months.. maybe it will work in our favor..or maybe not.. Once again.. thanks for your help!
Hi Brendan, If you were earning rent (i.e. income) in Australia while you've been away, even if the income was outweighed by expenses, you were probably meant to do a tax return and carry forward any -ve gearing losses. I'm not an expert in this area but it would be worth checking with an accountant as soon as you can (I had to do returns when in the UK but my employer was still Australian based, yours may not be). Also, if you take equity from an investment and use it for your own home, then the interest on the increased loan used to get that equity will not be tax deductible. Again, check with an accountant. Dave
Hi Brendan, St George Bank do expat loans so you will have some leverage with your current lender. You can basically tell them that you are going to switch lenders if they aren't going to give you a better deal, admittedly a new lender will definitely take on your current rate though whether they give you a discount is another question. Only way to find out is asking around. PM me if you need more details. Good luck, Dan
Thanks for the info guys. D&K, I am being paid by a UK entity over here, so I am effectively not earning an income from an Australian Employer.. but I would still like to claim depreciation and deductions on our investment property whilst here.. do you know if thats possible? AsxBroker, thanks.. I have sent you a PM
I could be wrong but I think that because of your rental income you will be required to do a tax return. However, because you don't owe anything to the ATO hopefully you won't incur a fine. I know a case though where a guy was owed a few $k in 5 years of tax returns and the ATO took half of that back with a fine for lodging late returns. Talk to your accountant.
