So you're an Australian citizen living overseas with a good job, earning a high income, and with cash to invest in a property. Australian banks should be crawling over themselves to lend to you, right? The answer is not always the case. Australian expat mortgages can be tricky. This post will provide valuable insights on five key things you must know about Australian expat home loans. Knowing these aspects will help you navigate the home loan application process and make informed decisions before your property purchase.
Let's dive in.
Deposit Requirements
When applying for a home loan in Australia as an expatriate, the deposit requirements vary greatly between each bank, mainly because each has a different way of assessing you as an overseas borrower. Australian citizens can still borrow up to 90%-95% of the property value with Lenders Mortgage Insurance (LMI). However, this is not the standard; there are extra assessment requirements when earning overseas income, and for Australian PR holders, it may be slightly less.
Most banks will lend 70%-80% of the value of your property as an expat. So when planning, you should anticipate having a 20%-30% deposit available, plus additional funds for stamp duty, which your mortgage broker can help calculate for you.
We can generally obtain the same interest rates as onshore borrowers for most applicants, depending on your situation. We try our best to work with lenders that don't penalise you for borrowing as an Australian citizen overseas.
Exchange Rate Issues
If you are earning a major foreign or Gulf country currency, you should normally have no issue with income acceptance with most banks when they assess you for your home loan. Various lenders will have different ways to shade and assess your foreign income, but it is common for most lenders to apply Australian tax rates to your income, which can affect your borrowing power. Not all of them do this, however, and we have some banks that will consider your actual income, so partnering with a mortgage broker who knows the different bank requirements can make a big difference to your potential borrowing capacity.
Expanding on this, fluctuations in currency exchange rates can also play a significant role in determining how much you will owe in repayments. Since your loan will be in Australian dollars, any devaluation in the foreign currency you earn can make your loan repayments more expensive. It's essential to factor this into your budget and planning.
To prepare for these financial variables, setting up an Australian bank account to deposit your earnings can be very helpful. Most banks will open an account for you once your loan has been formally approved. It is important to plan for FX movements between when you purchase and when you settle and Hedging strategies, such as forward contracts, can also be considered to lock in a specific exchange rate for a set period. It is also good to work with reputable FX transfer companies such as OFX and Wise.
Any loan you take out will be in Australian dollars, so it is important to do your forward planning to ensure you can manage your foreign exchange risks. Knowing the ins and outs of how different lenders treat foreign income can dramatically affect the loan terms you might be eligible for. Therefore, consulting with experts in this field is crucial for optimising your loan conditions.
Taxation Concerns
Australia has one of the most complicated tax regimes in the world, and the rules are different for Australian Expatriates compared to when you are living onshore.
When you purchase an investment property in Australia, the main tax implications you will need to consider are:
- Capital gains implications (both on new and any existing Australian properties);
- Land tax in the relevant state where you make a purchase;
- Your income tax obligations when you start earning rental income as a non-tax resident; and
- Tax deductibility of your home loan and the best rate and repayment structure.
Once you purchase a property and earn rental income in Australia, you must start lodging Australian tax returns each year and potentially pay income tax. It is important to understand these requirements before you purchase, and we recommend obtaining tax advice from an Expat tax specialist. Please feel free to contact us for a complimentary intro.
Buying a Property with a Foreign Partner
Purchasing with a foreign citizen spouse can have implications in terms of the stamp duty, applicable taxes, and the lenders we have available to assist.
In general, if you are purchasing with an Australian citizen as a husband and wife, you do not need approval from the Foreign Investment Review Board (FIRB) to buy a home or an investment property. However, if your spouse does not have PR status, most states will levy a foreign buyer stamp duty, which can be 6%-8% of the purchase price, significantly increasing property purchasing costs. Also, even with PR status, NSW generally levies foreign buyer duty on overseas PR purchasers.
Most states will also levy additional land tax with a foreign citizen on the title.
Also, if your spouse does not have PR status, we may have to use non-bank / specialised lenders or Singapore-based banks, which can have additional costs and requirements.
Everyone's situation is different, so it's important to understand these rules before purchasing and seek advice from a tax professional.
Loan Application Timeline
Assessment for Expat Home Loans can take longer than the standard process for Australian-based borrowers. One of the main reasons for this is that the documentation requirements are often much more extensive, and the level of assessment each bank does is quite involved. Additional verification may be required for those residing overseas, such as employment verification and income assessment from a foreign employer, which can further prolong the timeline.
We normally recommend planning for the pre-approval process to take 2-3 weeks, depending on the bank we need to utilise. This allows time for us to complete your review, obtain all the necessary documents, and then receive the conditional loan approval from the lender. It's important to factor in time zones and international communication delays, as these can sometimes add extra time to the pre-approval process.
Once you successfully purchase, it generally takes another 1-2 weeks to approve the loan unconditionally. This stage often involves reconfirming the most recent figures in your financials and a property valuation. Timely submission of any additional required documents can expedite this phase.
Then, it will take another 1-2 weeks to execute and return the mortgage documents. You'll likely be finalising your loan terms, including the interest rate and repayment schedule. Reviewing and signing these documents carefully is crucial, as they constitute the legal basis of your loan.
You may need to visit the Australian consulate as part of this process, depending on the state you purchase in, which can incur some additional fees. This step is usually needed for the notarisation of documents and might require scheduling an appointment in advance, so it's advisable to factor this into your planning.
Proactively preparing and submitting all required documents can considerably speed up the loan application timeline. Given the added complexities of applying for a loan as an expat, working closely with professionals who understand the intricacies of the process is essential.
BONUS: Buying a Property as a Self-Employed Expat
Australian business owners are generally not accepted by banks in Australia, so we need to consider other non-bank and specialised lenders who have experience in assessing overseas business income and structures. We can normally still borrow up to 80% LVR with these lenders. They will want to see at least two full years of the company's trading history and use the average of this income in the assessment.
What Is the Maximum LVR for Expat Mortgage Australia?
Financial institutions in Australia generally offer a maximum Loan-to-Value Ratio (LVR) of up to 80% for Australian expats who are buying property without the requirement for Lenders Mortgage Insurance. With LMI in place, you could secure a mortgage with an LVR of up to 95%.
It is important to note that banks or any lenders have their own policies and criteria for expat home loans, and there are factors that impact your loan-to-value ratio. The currency in which you earn your income plays a pivotal role in determining your borrowing capacity. For example, suppose you're earning in top-tier currencies like the USD or SGD. In that case, you might find more favourable loan terms than less popular currencies.
Property type and location are crucial, too. For instance, residential property often has higher LVR offerings than investment property. Moreover, the state revenue authority may impose additional land tax or stamp duty, particularly if you are a foreign investor. These additional costs could affect your property purchasing costs.
Fixed-rate loans can be beneficial, especially for expat borrowers, as they provide certainty to your repayments. However fixed rates can have early repayment penalties so it is important to discuss your plans with your broker when deciding on an appropriate structure.
If you own existing Australian properties, rental income from these can bolster your borrowing power. You might also benefit from negative gearing benefits on your investment. However, it's essential to note that you will be subject to paying non-resident income tax in Australia, and the rates may vary depending on your actual income.
Mortgage brokers can provide invaluable guidance in the complex landscape of Australian expat home loans. They can help navigate the complexities of loan documents, credit policies, and approval criteria, ensuring you meet all the requirements for a successful application with the desired LVR and terms.
How Are Foreign Incomes Assessed by Australian Banks for Expat Home Loans?
When securing an expat home loan for buying property in Australia, financial institutions scrutinise various factors, and the foreign currency in which you earn your income is pivotal. Generally, lenders have a list of acceptable currencies they are willing to consider for your home loan application.
Strong currencies such as the United States dollar, Singapore dollar, EU euro, British pound, United Arab Emirates dirham, Hong Kong dollar and Japanese yen are typically at the top of the list for most lenders. These currencies often translate into greater borrowing power and may even offer you the same interest rates that Australian citizens receive on home loans. Canadian and New Zealand dollars are also easily accepted by lenders due to their stable value.
On the other hand, some currencies are often met with more stringent credit policies. For instance, if you're earning in South African rand, fewer lenders might be willing to accommodate your application for an Australian mortgage, and such currencies may entail additional scrutiny.
If you're a foreign investor or a non-Australian citizen considering residential property investments, consult a mortgage broker. They can guide you through the maze of borrowing for overseas mortgages, from handling mortgage documents to understanding early repayment penalties. These experts are well-versed in the different needs of overseas borrowers, including the intricacies of borrowing in a foreign currency.
The nature of the property you intend to purchase, whether residential or investment, also affects your loan. For instance, purchasing existing Australian properties might give you an advantage, like leveraging rental income, which can positively affect your borrowing power.
While lenders have some restrictions on foreign income and currencies, expat home loans are attainable. Whether you are an Australian expatriate or a foreign citizen, you can navigate the complexities of buying property in Australia with the right documentation and guidance. Remember, it's essential to understand the financial obligations you will take on, such as paying taxes in Australia based on Australian tax rates and managing obligations arising from property value changes that could impact your future financial standing.
Conclusion
Borrowing from overseas has many different variables, and it is important to put all the pieces together to work out the best lender for your property purchase. Everyone's situation is different, and our strength comes in knowing all the ins and outs of the process to ensure we get you the best deal possible.
As an expat, you'll deal with different rules, fees, and requirements when getting a home loan in Australia. Each lender will have their own terms, affecting everything from how much you can borrow to your repayments. Keeping track of these elements is crucial for getting a loan that fits your needs.
Our expertise lies in understanding every detail, from loan documents to approval rules. This allows us to find the best loan for your unique situation. To find out how we can assist you in this complex process, feel free to book an appointment with us today here.
