Post Purchase Changes
When assessing your loan application lenders need to decide how much money they can lend you. They have a number of legal obligations they need to satisfy when they do this. These legal obligations are generally referred to as Responsible Lending obligations.
When evaluating your Borrowing capacity lenders will assess your income, your expenses and your commitments. It is important that you think throughly how your income and expenses will change after you purchase your property and you adjust them accordingly.
Below you will find the categories that are most likely to change.
Interest Received
If you are using all or part of your savings to purchase your new property you most probably will stop receiving or receive reduced interest from your savings.
Investment Income
If you are using all or part of your investment savings to purchase your new property you most probably will stop receiving or receive reduced investment income.
Rental Income
If you purchase an investment property you need to think what the expected rental income will be. To help you determine this amount we will tell you the current average rent for the property type and location you have selected.
Financial & Insurance
After you buy a property you will need to insure it and you might be liable to pay taxes, here are some average expenses to help you work out your post purchase changes.
- If you buy Investment property it is recommended that you take Landlord Insurance, this will cover you for the common risks associated with renting your property out. Landlord Insurance premiums will vary depending on the location of the property, its value and how secure it is. The average cost for a property of $1,000,000 in 2019 was $208 per month (source: finder.com.au). As an investor you might also be liable to pay land taxes this will depend on the state regulations and the cumulative value of the properties that are not your primary place of residence. Following some examples of Land Tax in the different states for a total cumulative value of $1,000,000, for more details check the respective state revenue office website.
| State | Land tax payable (on $1,000,000 value) | Website |
|---|---|---|
| ACT | 10593 | https://www.revenue.act.gov.au/land-tax |
| NSW | 5028 | https://www.revenue.nsw.gov.au/taxes-duties-levies-royalties/land-tax |
| NT | No land tax in NT | |
| QLD | 4500 | https://www.qld.gov.au/environment/land/tax/calculation/individuals |
| SA | 6311 | https://www.revenuesa.sa.gov.au/taxes-and-duties/land-tax/guides-to-legislation |
| TAS | 11588 | https://www.sro.tas.gov.au/land-tax/rates-of-land-tax |
| VIC | 2975 | https://www.sro.vic.gov.au/landtaxrate#LTX |
| WA | 2730 | https://www.wa.gov.au/organisation/department-of-finance/land-tax |
- For property to live in you will need Building and Content Insurance. The premiums will depend on the value of the property and its content, the location of the property and how secure it is. The average cost for a property of $1,000,000 in 2019 was $203 per month (source: finder.com.au)
Home
You need to consider things like maintenance and home upkeep. One rule of thumb for calculating maintenance costs is an average of 1 per cent of the value of the property per year, for example for a $1,000,000 property you’re looking at setting aside around $10,000 per year in order to keep the house in good repair.
Rent
If you are buying a home to live in you will probably stop paying rent so remember to deduct it from your expenses.
Services & Utilities
With a new home comes new bills. If you buy property to live in you will have the known bills including Gas, Electricity, Phone and Internet. There will be also be new bills that you only pay as an owner: water rates, council rates and strata fees. Properties for Investment also pay water rates, council rates and strata fees; these can make a big dent to the money you will have available to pay off your home loan. Here are some averages to help you calculate your post purchase changes
- Gas & Electricity: Your gas and electricity bills will depend on your location, your household size, the appliances you have and heating system among other factors. The Australian Energy Market Commission published the following electricity averages on the Residential Electricity Price Trends 2019 Report:
ACT – $1,937/year ($161.42/month)
NSW – $1,294/year ($107.83/month)
SE QLD – $1,425/year ($118.75/month)
SA – $1,854/year ($154,5/month)
TAS – $1,906/year ($158.83/month)
VIC – $1,135/year ($95.58/month)
WA – $1,600/year ($133.33/month)
- Gas & Electricity: Your gas and electricity bills will depend on your location, your household size, the appliances you have and heating system among other factors. The Australian Energy Market Commission published the following electricity averages on the Residential Electricity Price Trends 2019 Report:
There are no official stats for Gas average bills, some information can be found on bill comparison websites. In general Gas bills tend to be slightly cheaper than energy bills. According to Canstar.com.au in NSW for a daily consumption of 50.8Mj you can expect an annual bill between $713 to $796, that is between $60-66 per month. In Melbourne a daily consumption of 81.5Mj will attract annual fees of $805 to $1,016 that is between $67-$85 per month (source:canstar.com.au).
- Phone and Internet: For a basic internet package you can expect average monthly costs of $40 or less and for more robust internet packages you can expect a monthly bill of up to $100 (source:canstarblue.com.au)
- Water: Average water residential bill in major urban centres
Adelaide – $1,271/year ($105.92/month)
Canberra – $1,169/year ($97.41/month)
Darwin – $1,820/year ($151.66/month)
Melbourne – $1,016/year ($84.66/month)
Perth – $1,465/year ($122.08/month)
South East QLD – $1,401/year (116.75/month)
Sydney – $1,127/year ($93.92/month)
(source: teampoly.com.au)
- Council rates: Council Rates are used to provide essential infrastructure and services. If you own a home, you will pay rates to your local council. Rates are calculated based on the value of your land and its category. House owners generally pay much higher council rates than unit owners. This is due to the fact a house owner is solely responsible for the rates charged against their property value, while unit or townhouse owners will either be charged the minimum general rate or the general rate charged against their portion of the complex, or a combination of the two. There is no rule of thumb to determine what the council rates will be, the best option is to search for the type of properties you would like to purchase in the area you prefer and check the council rates on the real estate ad details or contact the sales agent to ask for this info.
- Strata fees: If you purchase a unit you will have additional strata fees expenses. Strata fees, also called levies, are contributions generally paid quarterly. These fees are used to fund the ongoing expenses of the scheme for things like cleaning, gardening, electricity and building maintenance, plumbing works, etc. IN general building with more facilities like ducted aircon, swimming pool, gym, spa, hi-tech security, concierge, etc. will attract higher fees. Where basic buildings with no security, no lifts, limited common areas will attract lower strata fees.
There is no hard and fast guide to determine how much will you pay in strata fees, you will need to search the type of properties you like in the real estate sites and look for the details to have an idea. As an alternative the Flat Chat column and website have evolved a rule of thumb that annual levies should be between 0.8 per cent and 1.2 per cent of a property’s value, for apartments with facilities, and 0.3 per cent and 0.7 per cent for townhouses and apartments with few or no facilities.
For the purpose of the calculation we encourage you to be as realistic as possible. If your expenses are too low lenders might use their own calculation of minimum expenses based on a family of your size. In addition, lenders will review your transaction and credit card statements to confirm the figures you put in.
This page was last updated on 24 February 2020