Home *is* where the heart is… but how do I afford one!?

HOSTS Carmel Moorhead & Zoe Moorhead|11 June, 2021

Meet your hosts

  • Carmel Moorhead

    Carmel is in a relationship of three and a half years with her partner, and they own a house together and a dog called Ruby. She says, 'despite my partner also being a lawyer, I still win all arguments'. Carmel loves gardening and can tell the difference between a cucumber pant and zucchini plant just by looking.
  • Zoe Moorhead

    Zoe is in a relationship with her partner of two years and they've lived together for the past 6 months. They have a cat fur baby named Dumpling, he’s a sweet boy with a fluffy face, but according to Zoe, 'he’s currently fighting with his plant brothers and sisters in the form of digging warfare'. In her spare time, Zoe is an amateur potter and has recently discovered the world of yoga and essential oil diffusers (would recommend).

It’s the Australian dream, right? A spouse or partner, two kids, a house in the ‘burbs with a yard, with prawns cooking on the barbie. Maybe that idyllic picture isn’t for everyone, but for those who do want it –  prices are pushing the property dream further and further out of reach. Plenty of young Aussies are looking at their bank balances, and thinking, ‘How am I ever going to scrape together a deposit without a second income to cushion the blow?’

In this episode, Zoe and Carmel look at the challenges in place to buy a house, whether you’re single or loved up. They hear from our wider community about their experiences buying their first house, talk about their different perspectives, before interviewing John Fisher, who runs a Mortgage Broking Business in Sydney. He talks about the options available to you, the things to be aware of when accepting monetary gifts for homes, and the other hidden costs you need to be aware of when preparing to buy your first home. 

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Zoe Moorhead: [00:00:19] Hello and welcome back to another episode of Meet Pay Love, a podcast. We'll talk all about money and relationships. It's been a while since we've talked to you, and I hope you're doing fine. Hello, how are you? I'm great. Thank you so much. First of all, we'd like to start off by acknowledging the traditional custodians of the land in which we are recording and listen to this podcast. And today we respect the elders past, present and emerging. Hello, Carmel. How are you? [00:00:46][27.3]

Carmel Moorhead: [00:00:47] I'm well, thanks. And I'm really excited to be back. And I'm excited about this topic that we're discussing today, which is buying a house with your partner. It's a topic that I'm quite passionate about, being a property lawyer and also owning a house with my partner. Yeah, I hope that you get a lot out of it today. [00:01:03][16.3]

Zoe Moorhead: [00:01:04] Well, the thing is, this topic is quite personal to you because you have gone through this process. I haven't quite yet, and I'm not sure. Well, like, I haven't been talking to my partner about it at all, so pretty far away. But I would like to preface this conversation with the fact that a lot of the stuff we talk about in this episode actually relates to individuals and couples together. The law doesn't really change that much. If you're a couple or an individual, you can do it by yourself or with someone else. [00:01:33][29.5]

Carmel Moorhead: [00:01:34] Yeah. And also things like lending, where to buy, what to buy when to buy. We won't really be going into that. But it really doesn't matter if you're buying as a single or as a couple. One of the interesting things that always pops up when you talk about buying a house with a partner is when you have an equal deposit saved or you have unequal earning capacity or they call it serviceability. So you might not be able to service a loan as much if you are a low-income earner. So it is always a bit tricky, I guess when you're buying with someone else because it's very rare that a couple will be earning exactly the same amount and have the exact same amount saved. [00:02:11][37.6]

Zoe Moorhead: [00:02:12] Yeah, and on that, if you have the capacity to buy by yourself. Absolutely. 100 percent go ahead. But buying with another person does allow for a higher lending. So you can probably get lent a little bit more from the banks and does put the burden of paying off the home loan on to people. You know, it's not just you by yourself. [00:02:30][17.5]

Carmel Moorhead: [00:02:30] Yeah, exactly. And although it's obvious it's good to be said, for example, I was going to be buying a house on my own, a house with something that I was always really wanting to do. It was something that I wanted to do first before I'm investing too much money in shares. And obviously, you know, it's a personal thing and there's not one size that fits all. But for me, I wanted to buy. So I was looking at apartments and then I met my partner and I put my buying plans on hold for a while. And then when we were quite serious together, we decided to buy together. And it meant that all of a sudden, instead of buying an apartment in the area that I wanted to live, I could now buy a house with paint in the area that I wanted to live. So it worked out for me in that sense. The interesting thing was for us was I had a lot more money saved. I had lived at home and I just was a good saver, whereas Pate had lived out of home and wasn't as good a saver. But he did and a lot more than me. So for us, it kind of balanced out in a good way that I felt quite equal, even though we're coming at it, you know, from different positions. [00:03:37][66.9]

Zoe Moorhead: [00:03:38] Well, yeah, you're not alone in that because 30 percent of millennials currently are in their own home, and that is according to a New South Wales. So you are in good company myself. Personally, I've kind of given up on my dream, not given up. I'm definitely putting it on hold for, like to buy a house. I did want to buy a house and I have been looking, but right now my deposit is just me. I haven't as I said, I haven't discussed this with Ali at all. It's not something that I am avoiding discussing with him. I just think we have other things that we want to achieve before we kind of buy a house together. But I'm not alone in that. So there is that sort of split between mentalities. But there are a lot of barriers to entry when it comes to buying property, not just finding someone else to buy with or going alone, but this stuff like the house deposit. So according to Savings Dotcom, that 40 percent of millennials say saving for a house deposit as the highest barrier of entry when it comes to buying a house. Forty five percent say the secondary is probably getting a loan. And then 44 percent say stamp duty is another issue with buying a house. Stamp duty is a strange one that I never actually realized what it was, but it does put an extra cost on top of the overall cost of the house. [00:04:51][73.5]

Carmel Moorhead: [00:04:52] All right. As always, we're going to head into an interview with everyday people. And today we're hearing from Casani. She's going to talk. To us about her experience, about how hard it is to buy a house and to find the rest of the house and getting outbid, which I think is happening when I was buying it took us about 12 months to find the right place. And we were seeing things go 100000, 200000 over the listed price. And it just takes that time sometimes to see how it all works. Adjust your expectations. You have to make compromises and you're not going to compromise straight away without doing the research and looking about what's actually in the market and within your range. And then you might want to think, OK, is land more important to me or do I want something more modern that I'm not going to have to do up? And I could talk about this for ages, but anyway. [00:05:45][52.9]

Zoe Moorhead: [00:05:46] Well, why don't we let Cassani talk for a little bit? So it over to you casani. [00:05:51][4.2]

Casani: [00:05:53] I'm Casani, I'm twenty three, my partner and I live together and we go between our parents houses and a massage therapist worked part time for the last probably 18 months. My partner and I've been saving to buy a house and for the last six months we've been actively looking, which is increasingly becoming a little bit harder. Let me start looking for a house. People tell you like, oh, you walk in and you just know it's the house. You know, you get that feeling. And we were going through a few different houses and we were not getting that feeling. And we've put about three or four different offers down on the house. Now we're finding that we just continuously keep getting outbid to the point. We're like, well, maybe we'll increase our price range, but we don't really want to do that for our first house. But pretty comfortable with just getting something that's kind of in a lower price bracket, but still a really nice house because we're pretty lucky in Mandro. There are some really nice houses and an affordable price. So we don't have to go too far out of our budget. But now the prices are getting a little bit higher. It's starting to get increasingly difficult. We've been together for two and a half years now. I think how we got into the discussion of wanting to save for our house was April twenty nineteen. We got back from Bali and we booked our next holiday and I saved up for that, did all the travel plans and everything. And then I was like, what else am I going to do is find the money. Michael had just got a full time job after being unemployed for a couple of months. So we kind of had a bit of excess money and we were spending it here and there. And I just kind of rent the barefoot for investor and started listening to different podcasts and wanted to put my money towards something a bit more meaningful. And we were kind of getting sick of our parent's house. I really quite went in there listening and we were like, well, why don't we look at buying a house for ourselves and, you know, getting out of our parent's house? And I emailed a mortgage broker who's a family friend, and he was like, well, get to this number and then we'll talk. So he gave us a savings goal. And then he was like, when you're ready, just let me know and we'll take it from there and kind of get you preapproval and stuff done. We probably have about an annual twenty K difference in our earning, so I earn less and he earns on the more side, although I'm probably the better saver, I just don't think that I would have been able to purchase a property without my help. Even though we've got the same kind of savings amount currently, I probably wouldn't have bought a property at least within the next three to five years' time on my own, because it's with my income. It probably would have been would not have been feasible to do. [00:08:41][168.4]

Carmel Moorhead: [00:08:42] Yeah, thanks, Cassani. And now we're going to hear from other everyday people who have called in to share their story about buying a house with their partner. [00:08:49][7.4]

Adam: [00:08:50] Hi, my name's Adam and I have a bit of history of having bought and sold property with my now wife. [00:08:55][5.3]

Adam's Wife: [00:08:56] My wife and I have been together for six years. We're both turning twenty seven this year. I'm a dentist and he's an accountant and quite a bit more than he don't. [00:09:05][9.8]

Adam: [00:09:06] We both on in about the same day. My wife's actually she's the smarter, more professional one. I just have artist work shift work. [00:09:12][6.8]

Adam's Wife: [00:09:13] So when we decided to buy a house we'd been together for about four and a half years. And when I was moving back, we decided it's just time to live together. And we both had quite a bit of money saved up. So we thought buying was the right choice for us then. [00:09:24][11.4]

Adam: [00:09:25] We've been together for about four years and married for just over one of those. I'm thirty one and working in education, whereas my wife is thirty seven and works more in the corporate space. [00:09:35][10.0]

[00:09:35] We bought our first family home in 2009 and then we bought our what we now call our forever home in twenty [00:09:42][7.0]

Adam's Wife: [00:09:43] seventeen. We bought it right before covid. [00:09:45][2.6]

Adam: [00:09:46] My wife probably want something a little bit newer and ready to move into straight away, whereas I'm more excited about the opportunity to renovate and capitalize on a bit of DIY work, which I'm really passionate about. [00:09:57][11.5]

Adam: [00:09:58] What I do different, I probably. Wouldn't rush to sell, but hindsight's a wonderful thing. [00:10:01][3.3]

Adam's Wife: [00:10:02] The hardest thing about trying to buy a house with my partner is not rushing and trying not to be affected by the people that were there at the Home Office, because even at the Heineken's, I'd be like 20 different couples in some houses would go and offer on the same weekend they had their first home open. And so it was really hard. [00:10:17][15.2]

Adam: [00:10:17] What we did, though, is we came up with a list of things that the House must have and must not have, and then sticking to that as a bit of an anchor was really helpful. [00:10:27][9.5]

Adam's Wife: [00:10:27] Don't get caught up into that line, Bob. And rushing to buy a house just for the sake of buying a house, because I have this money sitting there. [00:10:34][7.0]

Carmel Moorhead: [00:10:34] Thanks so much. It's great to hear from people, from our community to hear, you know, what's actually going on out there. And so now we're going to move more into lending. And because I think affordability is one of the biggest issues when buying a home, once you get past the door, I want to buy a house with my partner. How much money are we going to put in? You know, I think the next issue is how much can we afford? And so according to CoreLogic, it takes an average of eight point seven years to save enough for a 20 percent deposit, which is a really long time. And I think as the mortgage broker that we're going to speak to will tell us, a lot of people are getting help from their parents. [00:11:13][38.3]

Zoe Moorhead: [00:11:13] That's kind of one of the things that put me off is the deposit. It's so hard to try and save that amount of money, especially when you're new to the workforce as a millennial, which actually let me just be honest, I'm technically against it. We've done this whole podcast and I just found out that I'm technically a gen said, not a millennial, but it applies to Gensets as well. I'm just on the cusp, but I've just entered the job world and I have been struggling to save any sort of money, especially not 20 percent of a deposit for an apartment or a house. But the thing is as well, worryingly, this is from CoreLogic as well. Many Australians, about 44 percent, are unaware that banks can actually lend to you without a 20 percent deposit. So you don't need all of the money, but it would be good to have some. [00:11:56][43.0]

Carmel Moorhead: [00:11:57] Yeah, and I guess it just comes back to individual circumstances. We didn't quite have 20 percent deposit, but because of our professions, we had LMI waived. I think banks are being more stricter on that in the current climate, but it pays to get professional advice in this area, obviously, to figure out what what you actually need in terms of a deposit to buy what you want to buy. [00:12:21][23.8]

Zoe Moorhead: [00:12:21] So you said LMI. What what does that stand for? [00:12:23][2.0]

Carmel Moorhead: [00:12:24] not an expert on this, but just from going through it myself, the purpose of having 20 percent deposit is if the market dips or crashes 20 percent, then the banks are still going to be able to sell your home and recoup all of the amounts that's loaned to you. So they're not going to be in a position where they're losing money. So that's why you need that 20 percent buffer or equity in the house. The LMI insurance is for if you don't have that 20 percent deposit, then it insures so that the banks can recoup any loss they might have if if you default on your loan and they have to sell the house. But some banks think that your profession is secure. So doctors, lawyers, I don't know. It depends on the bank. [00:13:10][46.4]

Zoe Moorhead: [00:13:11] Visio, not digital marketing professionals. [00:13:13][2.3]

Carmel Moorhead: [00:13:15] I don't know. Maybe there are some bank out there. I don't know. Again, this is not my area of expertise lending, but I will talk to a mortgage broker who does have this is the expertize. But what I'm saying is you can get it waived. I mean, sometimes you might want to just pay it because it's you know, the market might be going up faster than the amount that you can save. And so you better off just paying LMI. It really just depends on your circumstances, your risk tolerance, all those kind of things. [00:13:46][30.9]

Zoe Moorhead: [00:13:46] Well, as you keep saying, you are not an expert. So why don't we talk to someone who is first of all, we're just going to take a quick break to hear from this message from our sponsors. And then we're coming back with our chat with a mortgage broker. [00:13:58][11.7]

Carmel Moorhead: [00:14:35] And now we're going to hear from John Fisher. John is a director at Pitcher Partners and he heads up the finance broking division in Pitcher Partners Sydney. He deals with advising people on loans for houses every single day. I got a lot out of this interview, and I hope that you do, too. [00:14:53][17.8]

John Fisher: [00:14:53] So, yeah, my name's John Fisher. I run a mortgage broking business in Sydney based in Woolloomooloo, just outside the CBD. We secure Homeloans for a lot of personal clients and then and secure business loans for some of our business clients as well. So I guess we're the ones that are preparing clients for their first-time purchase or their second or third purchase. And we're doing a lot of the negotiations and the legwork with the banks. But we like to we like to do a lot of analysis upfront and make sure people are prepared for that huge journey. They go down when buying a property, particularly first time buyers. [00:15:28][34.1]

Zoe Moorhead: [00:15:28] When do you go directly to the bank and when do you go to, like a broker to secure your loan? [00:15:33][4.7]

John Fisher: [00:15:34] You are asking a broker. So I'm probably going to tell you I'm going to be a bit biased and tell you to go to a broker. I can give pros and cons of both just to be to sit on the fence, but some people go direct to a bank. But there are the pretty much just the major banks where you can go direct. It's any bank that's got a branch, a physical branch, where you can actually go into a store and speak to a banker so that that's generally, you know, CBA, ANZ, Westpac and NAB the major banks and some of the other banks. But you know, myself, I'm accredited with about 40 lenders, and there's obviously not 40 lenders or banks that have branches. So they rely on brokers to kind of feed them business. And that in turn creates a bit more competition. So if you can imagine, if you just had people that could go into the branches with the big four, all these other lenders are going to be really active or dominant or have any market share to put pressure on those major banks to reduce rates or to improve their products. So key question specifically, you can go direct to a bank, but you can also go to a broker where generally you're not paying for their service because they're going to get paid via a commission from the bank. And you can have a chat to them and they can kind of look at your situation independently, weigh up your assets, your liabilities, your income, your actual specific situation, because everyone's situation is different and not every bank or bank product is perfect for that individual or that couple's situation, having the ability to actually really uncover someone's needs in their situations and their circumstances and what they really want to get out of it and then, you know, approaching the right bank with the right product for their needs. So I think that's where the broker in the bank, the difference is a broker of, you know, paying for their service. They can sit down with you and actually, you know, really recommend a product that they're independent of. [00:17:36][122.0]

Zoe Moorhead: [00:17:36] Yeah. So it's a more personalized lending experience. If I put my little marketing hat on and I summarize it in, like, one word, one sentence, [00:17:43][6.7]

John Fisher: [00:17:44] that's good that's a good way to describe it. Having options. [00:17:46][2.0]

Carmel Moorhead: [00:17:47] So what trends are you seeing in the market at the moment? What are you seeing with your clients in terms of how many percentage wise do you think would be buying with their partner or with another person, perhaps their parents? This is people that are buying just as single people. [00:18:03][15.6]

John Fisher: [00:18:04] They're the majority that we would be seeing at the moment. We would probably be doing half our loans at the moment, would be first time buyers. And I think that's reflective across the data. Around Australia, but for us specifically, what we can really comment on what we say, saying a lot of couples, first time buyers, couples, joint borrowing and joint ownership, a lot of people, a lot of trends at the moment or big trend at the moment. Sorry is. People struggling to actually save the deposit required, so given rates are at historically low levels and people's incomes are maintained and hopefully going to go up with wage growth, people can afford the amount of debt they need. But a lot of people don't have the cash required to contribute as a deposit and pay stamp duty. So I'll talk in New South Wales, but if you buy a property for a million bucks, generally, you're going to need around two hundred and forty five thousand cash to complete that purchase. Now, there are ways to complete it with less cash, but they're going to be more cost. But I'll just generally speak with what the banks are comfortable with. Buy a property for a million dollars. Banks happy to lend 80 per cent. So that means you're contributing 20, which is 200, and then you can have around 45000 in costs, which are going to be stamp duty and conveyancing costs in a few other bits and pieces. So that can be a big equation for people trying to get into the market and saving that amount of cash. And people you know, people may have shares. People may have Bitcoin. They may say, well, I don't really want to liquidate those assets to contribute to this property. So there is a big trend in parents gifting millennials cash or early inheritance to contribute to their first property purchase and then solving that equation of coming up with that, you know, circa 250000 for the million-dollar purchase. So that's a huge trend. A key point to that is the bank will often ask the parents to sign a letter confirming that that gift is non-repayable. So that's something that people should be aware of. Obviously, if you know you've got an uncle or auntie that lends you two hundred thousand dollars and says pay it up in 12 months, it's not an ideal situation if you're going to borrow a heap of money from the bank and then you've got a nasty uncle after you for a couple of hundred grand. So if it's if it needs if it's got terms on that gift and it's repayable that needs to be disclosed to the bank, and it's probably going to ruin your chances of getting a loan because the bank has to. Incorporate all your liabilities and obligations in that equation when they're working out, if they're comfortable to lend you that money and that's going to be Hick's, that's going to be a car loan. That's going to be a credit card and see credit card limit, not your balance. You might have a Dow Jones card, you might have a card, you might have a virgin card. And you don't actually use them, but they're going to factor on the limit. But your big trend, people needing gifts from their parents to get their first property, people leveraging off a family member's property as a guarantee. Yeah, I guess property prices are going through the roof no matter where you look. Regional cities across Australia and in Sydney, obviously, and in there's that element of fame that's come through. And that was kind of coming through late last year. People kind of spending, you know, way above what they were initially comfortable with when we first chatted. And then we go down this path of a couple of months of, you know, getting a preapproval and suddenly going, hi, John. I know it's appropriate for a million-dollar purchase, but I think we're gonna have to stretch to one point three. And this is how we've done it. And that's generally, you know, one of the parents providing property as collateral. I would say about two out of three applications at the moment for first-time buyers, in particular, are involved in some form of support to secure their property. They can afford the debt because obviously debts at the lowest it's ever been. So people have really got to be careful that it's generally a 30 home loan rates aren't going to be as low as they are now. So we need to make sure people are factoring in buffers. It's a bit stressful for people at the moment, and particularly if you go to an open home in this 30 people and there's a people that sort of, you know, look a bit older than you and, you know, you might get gazumped at the auction or whatever, but [00:22:33][269.6]

Zoe Moorhead: [00:22:34] so you say that there's a lot of demand for property. Are we ever going to see that crash that everyone thought it was going to happen with private? Is that ever going to happen? Are the rates so low that everyone's like, now I can actually buy a house? [00:22:46][11.9]

John Fisher: [00:22:47] That's a good question. I think when it hits. So for me, as a small business owner, that was scary. You know you want to be able to keep your staff employed. And it was it was a really scary time. And I think and then wrong. But we're all fixated with the news and the stats around Koven and the infection rates. And someone in my apartment building Woolloomooloo got it early days. And I thought, oh, God, this is actually going to really hit home. And then, you know, the banks released all that repayment porres security blanket for people. And, you know, you could pause the repayments on your home loan for six months and you only had to catch up over the remaining term, which is, you know, if you got a loan last year for 30 years and then you just pause your payments for six months, you've just got to make up six months repayments in 29 years. So it wasn't actually going to affect many people. So a lot of people jumped on that, which was great. The government reaction was swift is quick. It was pretty is pretty good the time that they actually executed on it. But then we all thought that a lot of those people that were in repayment policies and this came from a lot of the some senior bankers that were really worried a lot of people would default. But then as the government kind of wound back job shopkeeper. I think some of the stats ended up being there, but there are only 300000 people on it towards the very end from those huge numbers early on, early on. So definitely low rates are helping how low the rates can stay for. How long is the question? It seems like everyone's spending money. People are buying expensive properties. People are you know, they're not going on holidays. But as soon as they will, I'm sure there's going to be floodgates out the door. But it seems like people are spending a lot of money, but inflation's still at an OK level. So it just depends on. I guess interest rates are the big thing. It seems like there's going to be some key, key catalyst for that property crash to happen, [00:24:54][127.0]

Carmel Moorhead: [00:24:55] moving back to your friends and and couples in particular. So I'm mid 20s and a lot of my friends are at the stage of buying their first home and that most of my friends are looking to buy with their partners. One of the common questions that comes up, I guess I Ren over coffee is my partner has a lot more in savings or a lot less in savings than me. We have unequal, different deposit amounts. I don't know how to approach this. And I assume that you would come across that issue all the time. I know your job is not to be a financial adviser, but how do you say that people attack that problem? [00:25:36][41.0]

John Fisher: [00:25:36] Yeah, that's it's a common thing that comes up and it's something that, you know, dealt with first hand and friends and family and the like. It's not something that I don't sit in a meeting or go out to a coffee shop and meet a couple. And they obviously I don't probably voice that, but because it could be a bit awkward. So I'm not sure if that's one of your friends in the relationship saying that to you, saying how do we approach this? Because it's sometimes can be awkward in a relationship when someone's got more money or less money or someone's got more income to service the debt unless it's still going to be a partnership, you've got to go in it together. But I don't generally have people come to me saying, what do we do here? Because it can be awkward. But I think something that is and it might answer the question it's a bit more transparent is when, you know, one of the someone in the relationships parents is the one contributing a lot of the deposit with the gift. That's where you can sometimes get some legal framework in terms of if there was ever a split or if you ever sold the asset or whatever. That's where you can kind of change the ownership structure on the property to make sure that, you know, all parties are treated equally if there was ever an exit, because you don't have to just buy the property 50/50. You know, the common way is joint tenants, so, you know, 50 50. God forbid something happens to one of the people in the relationship, it'll just under joint tenants will just go to the other person. The other option is tenants in common, which will go to the will of the person. It's passed away. So if someone's putting in 500 grand to a big purchase, the other person isn't, they potentially may want to change the ownership of the property. So that's something they can do and get advice from their property solicitor and their accountant around that. Also, if someone's contributing more than you could get some sort of external legal agreement done. But it is something that I think people think about a lot and they need to obviously talk about it and be transparent about it because you don't want to, you know, feel jaded by that. And it creates issues down the track. But often what I say a common scenario is someone's got the cash savings, but then the other person's probably got more income to, you know, afford a bigger loan as a couple. So, however, why you can't put out if if if someone who's contributing more upfront wants to have more of an equity ownership in the property, or you might just say, look, it all evens out. I'm contributing more upfront, but this person's going to be paying in the next 15 years, probably more of the repayments. So let's just go in together as 50/50 ownership. But I think being transparent and talking through that is key. But often people probably aren't presenting that to me. They're probably working that out together as a couple. And that's a key consideration as well with investment properties and things like that from a tax perspective. So, you know, if there are listeners there that have the owner-occupied property and they're thinking about investment property, that's where you want to get advice. How do we own that investment property? Do we own it 50/50 or do we put it in the name of the person earning more income? Because it's going to be tax-effective strategy and that's where you get your accountant involved. But I think a key takeout is making sure you get advice before you do any big purchase, because obviously these are the biggest purchasers and the biggest loan applications we're ever going to do in our lives. So getting the right people in your corners is key. [00:29:09][213.2]

Carmel Moorhead: [00:29:10] So, John, when you say you can have a different percentage split of ownership, so say let's say someone was 20 percent owner and that goes on. The title was, you know, 20. And then there's the other party that has 80. But when it comes to the loan, would you ever see it where the one party that owns 20 percent would have a loan for only 20 percent of the value of that property? Or is it more common that you'd still have a joint loan? [00:29:35][24.4]

John Fisher: [00:29:35] Yeah, it's more common that you'd still have a joint loan because then they can look, you can structure it that way where if you have got a 20 percent of the property you've got, then a percentage of that 20 percent is the loan because you generally are not going to have 100 per cent loan against 100 percent of the value. So if you own 20 percent, then maybe you would get a loan for, say, six percent or whatever of that 20 percent. But it gets a little bit complicated with that structure. But I guess the short answer is yes, you can do that, but it's probably not as common. [00:30:06][31.1]

Carmel Moorhead: [00:30:07] And I wonder if that's the case with parents as well when you have parents that and earlier you mentioned how banks would prefer or they might require you to sign a letter if you're receiving a gift from your parents and may listening in the background as a property lawyer. But my property law had gone into, as you rightly said, definitely get advice because there's big different legal implications if something's to be treated as a gift or if it's to be treated as a loan. And we often draw up loan agreements from parents. But going back to the split loan thing, if parents are giving up and maybe it's neither grief nor alone, but they're purchasing the property with you, so they might have a percentage split. I wonder if it would be common then for them to also have their own separate loan? [00:30:58][51.5]

John Fisher: [00:31:00] That's right. You know, definitely we've done that before. So that's the probably the way you can get support from your family is probably a good way to start this. And then I'll go into that direct to the gifts, cash, gifts, but then joint borrowing with the family member can be a way to I help you borrow the amount of money you want from a serviceability point of view. So whenever you go to the bank, there are the two key things. The three thing one thing is correct is obviously not being a dirtbag and being able to afford the loan and having a good history, but having enough security. So having enough value in the asset that you're pledging to the bank or you're buying relative to the debt. So that's a big component. And then also your ability to service that loan. And that's where, you know, having someone else on the loan may help either your partner or or a parent. The most common one is the gift, the cash gift. The second most common one is. A family security guarantee, so it's not as common for the parents to be on the loan or to joint on the property with the parent, so, you know, if it's myself as a single person, I need I can't borrow what I need to. So I buy the property with my mom. It's probably not the best strategy long term for me, but maybe myself borrowing. By myself buying a property by myself, but then using my mum's property as security to help me buy that property in my name. That's a that's a more common line structure that we find. So that's called a family security guarantee. So say in the example I used before buying a million dollar property and needing to 240 for K in cash safe, you know, I had a couple hundred grand in shares. I'm going to go really well in a year's time. I really didn't want to sell them, but my income was good and so I wanted to buy a million dollar property. It's going to cost me around a million and 50 with stamp duty and conveyancing costs, which you got to think about. But I don't want to actually contribute anything. I might contribute 50 grand, let's say. So the bank selling the bank is going to really want me to contribute two hundred and forty five grand or 250 grand, but I'm only contributing 50 grand. So I've got an issue with my loan to value ratio or my Elvir. So if that was a standalone deal, just that property involved. Be technically borrowing too much money relative to the value of that property, but my income's fine. So I could say to the bank, hey, I can I can pay this off in 10 years. I say, yeah, that's good. But if anything were to happen to that income, we would then have an asset that's only worth a little bit more than the debt. What happens if the property market goes down? Suddenly the bank is going to be exposed. So that's sort of the two two factors. Ones, you know, you're borrowing power from your income, but another is how much security you've got or what the Alvares loan to value ratio. So that's where in my example, I used I introduced my mom. That's where you could use a parent to provide another property as security. So, again, the example I buy, a million dollar property costs me a million and fifty, but I want to borrow a million dollars, so I want to borrow the whole amount that by itself doesn't work with the bank because they don't have enough headroom in case the property went down or in case I defaulted and I had to sell it. They're not going to get their money back. So they always need a buffer and that buffer can come in the form of a family guarantee. Getting someone's parents family home tied into your now first time purchase is maybe not ideal, but say if someone's got a two million dollar home with no debt, that's not as much risk there. So that's where the parent, the owner of that property can guarantee your debt. I guarantee your mortgage. So you're still the sole borrower. You log into your online banking, the loans in your name. You've got full accountability and responsibility of that loan, which is important for a lot of people. But you've been able to borrow and what you want. You've been in the example I gave. You've been able to retain those other investments rather than liquidating them because you can't afford that amount of debt. And then you've utilized the equity in your parent's home, which has been used as a as a guarantee. And the bank takes to the bank has to take a mortgage out of your parents home. But ideally, they're only going to take a mortgage out of your parents home for a short period of time. And I'll explain why so in the million dollar example, the banks happy to lend 80 percent of that, as a general rule of thumb, they can sometimes go higher than that, but 80 per cent is eight hundred thousand dollars. If we're borrowing a million dollars and the bank's happy to lend against my new home, 800000, it means that we're 200 grand out. So we need to go to the bank and say, hey. Yes, you're only happy to lend 80 percent of my million dollar property, which is 800000, but I'm coming to you with good income and I want to borrow a million dollars. You then get a 200000 dollar. So that's the difference, 200000 dollar family guarantee. So in the example I gave, my mom would sign a guarantee for two hundred thousand dollars supported by her home. Soon as my property went up in value or and combined with me repaying the debt in a few years time, the property was worth one point to and I'd paid down 200000 thousand dollars. And suddenly my debt relative to my asset value can stand on its own two feet with the bank. I can then release my mom's guarantee and they can discharge her mortgage. You want to be in a position where your family's only guaranteeing a small amount for a short period of time because they may be close to retirement or they just may not probably, you know, work their ass off and they don't want to have any ties to the bank or mortgages over their property. [00:37:06][366.2]

Carmel Moorhead: [00:37:06] Thanks so much, John. I guess what we said at the start here is although we talk about money and all things money and relationships and finance, buying a house is one of those things that really does actually apply to individuals and couples. The only thing that I can really think of that is unique to couples is if you and different amounts or if you have a different amount saved. But we're kind of discussing on the basis that you've decided as a couple to go ahead and purchase a house together anyway. I would just say that if you are going to have parents contributing, really think carefully about what it means to receive a gift or a loan and think about the documentation that you can get if you are getting a loan and seek advice from a property lawyer or someone about what those two things mean because it can have big impacts down the track. [00:37:56][49.6]

Zoe Moorhead: [00:37:57] John did say a huge trend that he's saying is that parents are gifting millennials cash to buy their first home. And this is also a trend with millennials. According to a poll conducted by seven news, about one in four, 23 percent of those who they surveyed got help from their parents for a deposit or loan repayments, while 12 percent reportedly having assistance with the full purchase price of the house that they bought. So that is a huge number of people going to their parents. If you're lucky enough and you have that sort of privilege that your parents are in the position to help you out with your loan, going to them to get that help. And was that something you ever considered commo going to your parents, our parents? Well, of course [00:38:36][39.5]

Carmel Moorhead: [00:38:36] I asked them, but of course, they said no, because, like, when you're faced with you know, you go through 12 months of looking and you go through brokers or banks and you get given a number and you keep getting you to keep missing out by 100000 dollars or 50000 dollars. It's just so much money. And, you know, just for Australia, I think we're about 18 percent deposit. And we were like, oh, do we need 20 percent? I just Mom, Dad, can you give me a bit more money? And they would just like no, this is something that you need do on your own. Like, I'm grateful for that now because we have done it on our own and we're comfortable with our repayments. I think my parents' position or our parents position was very much like, well, if a bank didn't loan you that amount without help from us, then can you afford that amount? Probably not. But if you are lucky enough to have your parents like Putin and they're happy to do that, then, you know, more power to you, I guess. [00:39:31][54.6]

Zoe Moorhead: [00:39:32] Mhm. Well, it's the things in my position because I couldn't have bought on my own and I haven't been discussing that with my partner. I did have that conversation with my parents. I keep saying me but I forget we're sisters so we have the same parents. I kept having that conversation with our parents being like if I were to get them to contribute, they would own that part of the property. It wouldn't be a gift. It would be a co-investment with my parents. And so I actually wouldn't own the house that I'm in. I'd only partially owned it, which I guess is a good step no matter what. Like it right now I'm renting. And to be brutally honest, it's just dead money. I mean, it's giving me a roof over my head, but I'm not putting it to anything. [00:40:15][43.5]

Carmel Moorhead: [00:40:15] I don't know about that dead money argument because this is a thing like you need to live somewhere and it's not. I don't I just don't really think that rent money is dead money because, for example, if I were renting my rental, might be if I was in a share house, might be 200, 250 dollars a week. And then if I my mortgage payments like 500 dollars a week, then I could take that three hundred dollar, 250 extra and put that in the stock market and that might give me better returns. So I just think it's not necessarily dead money because interest repayments are kind of dead money. So there's a difference between interest and principal. Obviously, the principal is the amount that you paid for the house and that's the amount of your loan interest accumulates on top of that people my. Argue that interest is dead money, so I don't know I just don't know about that argument. [00:41:07][51.2]

Zoe Moorhead: [00:41:07] Well, I think for me, what it feels like is. Although I am paying to live somewhere. The apartment, I mean, as we've just had, we just found out that we've got a box outside our window that admits CO2 gases like carbon monoxide gases into our kitchen window that no one told us about. And we've just got all this stuff that's wrong with it. That's like not really living conditions. And I'm still paying a lot of money to be here where I could be paying off a loan for a house that I live in and I own. And I can look after like this, that sort of difference of like although I'm renting and I've got a roof over my head, there are still things wrong with it that are beyond my control. And so it is more of that control of money. But then again, it's a very privileged standpoint to be from having the ability to rent, like, complain about. [00:41:58][50.7]

Carmel Moorhead: [00:41:59] Yeah, but I think a lot of people would agree that housing affordability is really high. And that's why particularly where we live in inner-city Melbourne. But that's why I was thinking it's probably for me if I buy my house and over time my repayments payments will go down as I slowly pay the house off. On the other side of the spectrum, the rental market is going to increase just with inflation and rent prices will go up. So over at the moment, my mortgage repayments of more than Ren, it might eventually be the opposite where, you know, I've paid off my house, I'm leaving for free, which is a long term game, and not everyone wants to live in the one place for a long time. So it just depends. But for me, I'm all about having your own principal place of residence is yours. [00:42:47][47.9]

Zoe Moorhead: [00:42:48] Oh, yeah. Well, I would tend to agree. I mean, I don't think that's another reason that's put me off buying is that Ali and I are not planning to live in Melbourne for the rest of our lives, nor for the next ten years. Hopefully, if covid sort of decides we can move somewhere else because obviously his family, half his family is in Thailand and we'd love to go see them and live there for a little bit. And so I don't want to have to pay off all these repayments. And then I go have to rent somewhere else in a different country. Doesn't really appeal to me. [00:43:18][30.5]

Carmel Moorhead: [00:43:19] Mum always said you can't really go wrong buying your own place if you intend to live there for a while because you've got to live somewhere. And that's where we're going to leave this episode. You've got to live somewhere. [00:43:28][9.7]

Zoe Moorhead: [00:43:29] That's the moral of the story. To live somewhere, you've got to live somewhere, whether it be in the back of a van driving all around Australia or if it's in an apartment or if it's in a house or wherever you want to live with your friends and share a house. But if you are a couple looking to buy, I hope this was informative and we look forward to seeing you. Next time we're going to talk all things weddings, weddings. [00:43:53][23.5]

Zoe Moorhead: [00:43:54] This next topic is very interesting. It's actually a lot of fun because I really want to plan a wedding. I don't know if I want to get married, but I would love to plan one eventually. [00:44:04][9.9]

Carmel Moorhead: [00:44:05] I think you made a career change. [00:44:06][1.0]

Zoe Moorhead: [00:44:07] I'm behind. Honestly, it seems really fun. It's either that or interior design. I'm having an existential crisis. That's what you missed on the break, guys. I'm going crazy. [00:44:16][9.3]

Carmel Moorhead: [00:44:17] Thank you so much for listening to us. And if you want more, please subscribe to Mapei Love. And you can check out our Instagram account, which is Mapei Love, or you can email us EMPL Equity Mates, dot com. We love to hear from you. We love having you on the show and we really appreciate your all your support. I, I thank you. [00:44:17][0.0]

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