Nick Bruining Q+A: Lenders may be wary of your cashed-up son. Do this with his $50,000 in savings instead ...

Question

My 19-year-old son has managed to accumulate $50,000 from part-time work since he was 14.

He is still at university but would like to buy an investment property. With the First Home Owner’s Grant and mortgage insurance waived, is it possible for him to finance?

He earns roughly $20,000 a year.

Answer

While your son is to be congratulated for his commitment to saving, it is probably too soon and will be very difficult for him to purchase a property.

Lenders are essentially interested in two things — the borrower’s ability to make the loan repayments, and ensuring that, in the event of a default, they are able to recover the debt.

As a standalone borrower, he would have great difficulty in jumping the serviceability hurdle without the effective “subsidy” to his real cost of living by living at home. To that end, the only possibility of him accessing any finance would be if you were prepared to be a guarantor for the loan.

That would also require you to use non-mainstream lenders because traditional sources of finance are unlikely to be interested.

The interest rate is likely to be higher to reflect the increased risk to the lender. Also be careful that you’re not ignoring a fundamental principle of successful investing: past performance is no guarantee of what happens next.

Most experts agree shares and property are currently “overheated”. It might be useful to explore alternative strategies that allow him to boost his deposit.

At this point in time, and in his position, I would continue to save using bank accounts — but those paying high interest. Online accounts offered by banks such as Macquarie, Rabo, ING Direct and others have introductory interest rates that are often above 5 per cent.

Unlike term deposits, the money is available at call. He could build up his savings and when the share market inevitably corrects, buy a blue-chip share exchange-traded fund via a discount online share broker.

While shares are volatile in the short term, they offer the best opportunity to grow his deposit. Then, when he is ready to purchase a property and has a steady job, he could sell the shares and use the proceeds.

Question

My wife and I receive an age pension from Centrelink. She continues to work part-time.

I recently received a long-service leave payment after retiring from my own part-time job.

Will this affect our pension?

Answer

You are required to notify Centrelink of the payment within 14 days of receiving it.

Fortunately, severance payments such as a redundancy or a pay-out of long-service and annual leave do not affect an age pension in the same way an allowance such as JobSeeker would be affected.

In the case of an allowance recipient, the number of days of leave linked to the severance payment is usually served as a preclusion period where a Centrelink benefit is not payable or reduced. This is called the “income maintenance period” and will typically include the time reflected in any leave and redundancy payments.

In your case, however, the payment would not be regarded as income but is added to your assessable assets. That amount will be captured under Centrelink’s deeming system.

If your combined pension is less than $1732.20 a fortnight, you are already receiving a reduced pension because of means testing. The value of the additional payment would further affect your ongoing pension.

If you are receiving the full age pension, it will depend on how close you are to the means test thresholds.

For a couple with one member working, your combined fortnightly Centrelink-assessable income needs to be less than $672 a fortnight, and $372 a fortnight if your wife stops working.

Assuming you are homeowners, your combined assets — excluding your home — will need to remain under $470,000 to keep the full pension. These numbers will change on July 1.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association