This one came through our Gold Coast office and it is the sort of file that never turns up in a bank’s advertising. One modest income, a subdivision, a granny flat, a boarder, and about $33,000 of consumer debt at rates that were quietly eating the household alive.
Client Situation
A Gold Coast couple with one dependent still living at home. He has worked at the same private school for 17 years in grounds and facilities. He is the sole income earner on $71,077 a year — no bonus, no commission, no overtime. Steady as a rock and not a dollar more than that.
His mother had subdivided the family property, and they were buying their portion from her. Until then they had been paying $700 a month in board to his parents. The portion they were buying had a granny flat let at $300 a week, and their adult son boards with them at $150 a week.
They needed $350,000 to complete the purchase, fund a renovation, and clear a car loan, a personal loan and a buy-now-pay-later account in one go.
The Challenge
Start with the income. $71,077, one dependent, no cash deposit, buying into a property valued at $1.2 million. On the face of it that is a conversation most people never bother to start.
Then the consumer debt, which is where the real damage was. A car loan of $23,901 at 5.49% costing $215 a fortnight. A personal loan of $7,472 at 13.25% costing $93 a fortnight. A buy-now-pay-later balance of $1,705 costing $190 a month. Around $33,078 of balances against roughly $857 a month of repayments. On a $71,000 income that is a fortune, and in a servicing calculation every dollar of it comes straight off borrowing capacity.
The file only serviced if both the granny flat rent and the boarder income counted. A lot of lenders take neither. Boarder income paid by your own adult child is a policy question at every lender that considers boarder income at all, and plenty will not touch it.
And there was no deposit. Not a small deposit. None. The equity had to come from the property being transferred at a value below market following the subdivision.
What We Did
The lender had to count both income sources, so that decided the panel before anything else. Granny flat rental where the flat has council approval and a formal tenancy agreement, plus boarder income considered rather than dismissed.
Then we papered the granny flat so there was nothing left to argue about. Fixed-term tenancy agreement, rent paid weekly by bank transfer, every payment traceable through the statements. A verbal arrangement and a cash-in-hand history would have killed it.
The consolidation did the heavy lifting on servicing. Rolling $33,078 of consumer debt into the mortgage removed about $857 a month of repayments from the assessment. The $700 a month of board to his parents also ceased at settlement, since they now owned the place. Between those two, the household’s committed outgoings dropped by more than $1,500 a month before the new mortgage was counted.
Renovation funding went into the same facility rather than being bolted on later as a second, more expensive loan. Total $350,000 against a $1.2 million valuation, so 33% LVR, owner occupied, variable, principal and interest over 30 years, with a full valuation ordered.
One more thing that mattered more than it should have to: the bank statements were spotless. No gambling, no late payment fees, no overdrawn accounts, no single cash withdrawal over $100. When a file is thin on surplus, that gets presented deliberately rather than left for the assessor to discover.
The Numbers
| Item | Position |
| Property valuation | $1,200,000 |
| Total loan amount | $350,000 |
| LVR | 33% |
| Cash deposit | Nil — equity via family transfer |
| Single PAYG income | $71,077 per annum |
| Granny flat rental | $300 per week |
| Boarder income | $150 per week |
| Consumer debt cleared | $33,078 |
| Monthly repayments removed | Approximately $857 |
| Board payments ceasing | $700 per month |
| Debt to income ratio | 3.70 |
| Net surplus income | $194 per month |
| Structure | Owner occupied, variable, P&I, 30 years |
Practical Takeaway
The consolidation needs saying honestly. Rolling a personal loan at 13.25% and a car loan into a 30-year mortgage cuts the monthly repayment sharply. It also stretches a five-year debt across thirty years, and if you only ever pay the minimum you will pay considerably more in total interest than you would have on the original loans. That is the trade. The way to win it is to keep paying the old repayment amount into the mortgage after settlement, so the debt clears in five years at a mortgage rate instead of thirty. Almost nobody does it. The ones who do save tens of thousands.
The second point is about what the property itself can earn. A granny flat with council approval and a signed tenancy agreement is income. The same flat with a handshake arrangement and cash rent is nothing at all in an assessment. If you have a second dwelling, or you are buying one, get the approval and the paperwork straight well before you apply.
Third, family transfers and subdivisions need planning ahead of settlement, not during it. The valuation, the transfer value, the transfer duty position and the parents’ own circumstances all have to line up, and a subdivision has its own timeline that no lender will wait around for. Involve your solicitor and your broker at the same time.
And a note on the surplus. $194 a month is thin. It got approved because the income is stable, the LVR is 33% and the conduct was clean, but a household running on that margin needs a genuine cash buffer sitting in an offset or a savings account before the first rate rise, not after it.
How We Approach These Deals
On a single-income file the first thing we do is total up the consumer debt repayments, because that is almost always where the borrowing capacity has gone. A $33,000 collection of small balances costing $857 a month does more damage to what you can borrow than most people would believe.
Then we look at what the property can produce on its own granny flat, dual occupancy, boarder, subdivision potential and go looking for the lender whose policy actually counts it. Two lenders can look at the same house and the same tenancy agreement and arrive at borrowing capacities more than $100,000 apart. That gap is the job.
Talk It Through
If you are buying from a family member, or you have a granny flat that could be doing more work in a servicing calculation, that is worth a conversation before you go to a lender.
Jeremy Harper, Credit Representative CRN 463430 of Mortgage Specialists Pty Ltd ACL 387025
This article is general information only and does not take account of your objectives, financial situation or needs. Figures are illustrative of the transaction described and are not an offer of credit. Names, lenders and property addresses have been withheld.