What would you do?

Hi Everyone!

Apologies, this is pretty long-winded...but here goes:

My partner and I have recently paid off all of our consumer debt, and are now in a position to buy our first home. We have around $12,000 in savings, and planned to save more before applying for a home loan (at least $500/week), but our situation has now changed. We are currently renting in Brisbane. We pay $450/week for a three bedroom house and live comfortably, but are sick of spending so much money on someone else's mortgage. My partner has a secure job in Brisbane for at least another two years (it's project work), but has decent job prospects after the two years (could be anywhere in Australia). I am currently a stay-at-home Mum to our two very young children, so have no income - but am able to just pick up and follow my partner's job around the country for a couple of years. My partner owns a house outright overseas (inherited) that he rents out. So, the plan was to use this house as leverage, along with our savings, in around 6 months to apply to borrow around $450,000 to purchase our first home here in Brisbane - living in this house for at least another two years. The plan would then be to follow his work around the country for another couple of years and rent out the Brisbane house, and then eventually settle in Sydney where we would buy another property to live in and stay in for the long term (as this is where our families are). But last night a spanner was thrown into the works. He received a call regarding a possible, more lucrative, job in Melbourne (at this stage it's only a possibility, and I am probably getting way ahead of myself, but it's worth considering how this changes our plans). The job would be in a not-so-great area of housing, so I'm hesitant to buy there, but we also don't want to keep spending money on rent.

As a side note, we have also just saved a separate $1000 with the intention of using this money to take the plunge and start investing in shares (using a regular savings program).

So what would you guys do? If we end up moving to Melbourne shortly, should we continue to rent and just save for the eventual Sydney plan? Or should we buy in Melbourne to save on renting again (even though the re-sale or rental prospects in the concerned area may not be great)? Or should we just drop the property dream for a while and just invest elsewhere, i.e. shares, until we're ready to settle?

Sorry if this is really confusing... I know I should probably speak to a financial planner (and we probably will), but just wanted to throw this situation out there to see what you all think.

Thanks in advance!
Ali

 

Hi Ali

Exciting times- travelling around the country with young children. I remember it well myself

From the information supplied, it sounds as though you're a FHB? If so, I'd be taking advantage of the state and federal grants and duty concessions to purchase a PPOR in Melbourne, even if it is only for a 2 yr period. This way you get the benefit of financial assistance (which will come in handy given your small deposit) and a residence that's exempt from cap gains if you do decide to sell. Don't forget that you also have the added advantage of the 6 year exemption if you then rent it out as an IP, provided you have no other PPOR during this period. As for being in a "less desirable" area, why not consider moving a few suburbs away?

Naturally, all of this will be conditional on what finance you can access. Best to speak to your broker or lender first to clarify your options. Best of luck!

 

Thanks for your advice Jacque - it's very helpful, and has given me lots of 'food for thought'. I think investing in property is wise, so I think that's the way we'll go, whether it be in Brisbane or Melbourne... thanks again for your suggestions!

 

Ali

Keep on saving.
$12K is nothing in the scheme of things and since you are not working you don't want to take on a huge loan either.

You still have time till June to take advantage of the FHB benefits
and check those out because I believe they now differ between states.

 

Thanks for your advice too Billv. I am a bit of that thinking, in that I too feel like we should save more for a decent deposit, but my partner is frustrated by the amount of rent that's just 'going down the drain' ($450/week), and has now convinced me that, as we've just paid off all consumer debt, and he has a very well-paid, secure job, and we have started saving, we should look into buying now.

We are entitled to the first home buyers grant (as the house owned overseas was inherited), so our total deposit would be $20k - I know that this is a very small amount, but we have no debts (except for a small renovation mortgage against the property - $10k), don't possess any credit cards and have two near-new, reliable cars.

Yesterday I spoke to a customer service person at our bank regarding their minimum deposit rules, and was told that we could:
a) use the inherited property as security to get a loan;
b) save a minimum of 10% deposit; or
c) take a loan of 20% of the new property's purchase price out against the inherited property to use as a deposit (avoiding LMI) and then borrow the rest as a separate mortgage.

Currently the inherited property is positively geared, and last financial year we ended up with a big tax bill because of it. If we go ahead and decide to buy soon, and then take option c (borrowing 20% against the inherited property) it will make the inherited property negatively geared. Does this mean that the loan interest on this property would be claimable at tax time (even though the money will be used to purchase our PPOR)?

 

You can only claim the interest on the loan if it was used to buy an investment property so in this case you can't because the loan was for to buy your PPOR.

However, if you were to rent it out 6 months later (assuming you found alternative accomodation for yourselves) then you would be able to claim the interest.