Tax debt refinance against property

Every lender sets its own maximum loan-to-value ratio, and those maximums differ by security type, by loan purpose, and by whether the file is full documentation or low documentation. Anyone quoting you a single percentage without seeing the property and the purpose is guessing.

The ordering, though, is consistent enough to plan around. Residential security in a metropolitan area supports the highest ratios. Investment property is close behind. Commercial property sits lower because the valuation and the resale market are less predictable. Specialised or rural security sits lower again. Low documentation assessment reduces the ceiling in every one of those categories.

The three numbers that decide it

• What the property is worth on a lender-ordered valuation, which is not the same as what the market feels like it is worth.
• What is already owed against it, including any second mortgage or caveat you may have forgotten about.
• The total needed: the ATO balance, plus any other debt being cleared, plus costs, plus a sensible buffer because the balance grows between quote and settlement.

The vocabulary an assessor will use

Loan-to-value ratio

The loan amount as a proportion of the lender’s valuation. Each lender sets its own maximum, and that maximum moves with the security type and the stated purpose.

Cash out

Funds released above what is needed to refinance the existing debt. Tax debt is one of the purposes a lender looks at closely before allowing it.

Unencumbered

A property with no mortgage registered against it. The simplest security to lend against, and often the quickest to settle.

Deed of priority

The agreement between a first and second mortgagee about who is repaid first. A second mortgage generally cannot proceed without one.

Low documentation assessment

An assessment built on alternative income evidence where full financials do not exist. It lowers the maximum ratio in every security category.

Releasing equity is called cash out, and every lender has a policy on it that varies with the amount and the stated purpose. Tax debt is one of the purposes that gets looked at closely, because it tells the assessor something about the business behind the borrower.

1. 01Some lenders decline the purpose outright. Knowing which ones before you apply is most of the value of a broker on this particular transaction.
2. 02Some accept it with conditions, most commonly that the balance is paid in full and paid direct, evidenced by an ATO statement dated close to settlement.
3. 03Some will accept it only with current lodgements and a clean recent conduct history on the existing mortgage.
4. 04Non-bank and specialist lenders generally have more appetite than the majors, priced accordingly and with a wider view of what is acceptable.
5. 05Private lenders take a security-first view, are the fastest, and are the most expensive. They belong in short-term situations with a defined exit.

The presentation matters as much as the policy. A file that explains how the debt arose, shows what has changed, and evidences that lodgements are current is a different proposition to the same numbers with no narrative attached.

A second mortgage generally requires the first mortgagee’s consent and a deed of priority, and not every first mortgagee agrees. Build that time into the plan rather than discovering it in the final week.

The valuation is the single most common reason a good file sits still. It is ordered by the lender, paid for as part of the application, and the valuer works for the lender rather than for you.

• Access. A valuer who cannot get in on the first attempt costs the file days, sometimes a week.
• Comparable sales. Recent settled sales in the immediate area carry the weight. Listings do not.
• Condition and presentation, particularly for a full internal inspection rather than a desktop or kerbside assessment.
• For commercial security, the lease. Term remaining, tenant quality and rental evidence drive the number more than the building does.
• Any works in progress. A half-finished renovation reduces a valuation rather than adding to it.

If a valuation comes in below expectation the deal is not necessarily over. Sometimes another lender uses a different valuation panel. Sometimes the structure changes. What does not help is ordering four valuations across four lenders and hoping.

Two conditions turn up on almost every approval: the ATO must be paid direct from settlement funds, and a fresh statement must evidence the payout figure. Neither is negotiable, and both are easier when your accountant is expecting the request.

1. 01

   Days one to three

   Position established. Balance, equity, lodgement status and structure. We tell you at this point if the answer is no, rather than three weeks in.

2. 02

   Week one

   Documents collected, file written, lender chosen, application submitted. Valuation ordered immediately where the lender allows it upfront.

3. 03

   Weeks two to three

   Valuation completed and assessment underway. Conditions come back and get answered. This is the stage that expands when a document is missing.

4. 04

   Weeks three to four

   Formal approval, loan documents issued, signed and returned. A fresh ATO statement is obtained for the payout figure.

5. 05

   Settlement

   Funds disbursed, the ATO paid direct, any other facilities paid out, and the new loan starts on a schedule you can actually plan around.

That shape is typical, not promised. Second mortgages and private funding can settle in days where the circumstances demand it. Commercial security, trust structures and outstanding lodgements all add time. Every timeline is subject to lender assessment.

This is the section other brokers leave out. Securing a business debt against your home moves the risk from the company to the family. That can be exactly the right decision, and it should still be made with clear eyes.

• If the loan is not repaid, the lender’s remedy is against the property. That is what security means.
• A short-term problem stretched over a long term costs more in total interest, even at a lower rate. Where we use a long term, we structure the consolidated portion so it can be paid down faster.
• A guarantor or a co-owner who is not part of the business needs their own advice, from their own adviser, before they sign anything.
• If the business is trading at a loss, refinancing funds the loss rather than fixing it. Take that question to your accountant honestly first.

We tell you the true state of things early, and we do what we say we will do.