Home Loans And The Expat
If you're like most Aussies and you’ve spent some time living and working abroad (for me it was five glorious years doing the startup thing in San Francisco), you’ve no doubt cast your eyes back home and wistfully wished you’d put some roots down in the property market before you left.
Despite Australian banks tightening lending rules for expats, the good news is Aussies living overseas can still apply for a home loan in Australia. Refinancing an existing loan is also an option.
The first thing to check is that you’re an Australian citizen, or have permanent residency status in Australia. The ATO can help you with that. If you’re living overseas but being paid in Australian dollars, then you can apply for a home loan as an Australian living in Australia would.
If you have permanent residency status but are working overseas and being paid in a foreign currency, then you will apply for a home loan as a foreign resident. And that’s when restrictions apply.
Firstly, you’ll need a stable income. Secondly, you’ll need an acceptable LVR. To work out your loan-to-value ratio (LVR), most lenders will reduce your foreign income by 20% (to account for the exchange rate) and convert it to Australian dollars. The maximum acceptable LVR will depend on the currency in which you’re being paid. For example, The US, UK and Canada will allow up to 95%, whereas a maximum LVR of 80% is the norm when your income is in Japanese Yen or Chinese Yuan.
Where it can become difficult is when you’re earning currency that is deemed risky to Australian lenders, or the country you’re living in is considered unsafe.
It’s not always clear cut. We had a bloke come to uno after he’d been rejected for a loan from a big four bank. He worked for a large international company, was paid in Euros, but moved around a bit, on his company’s orders. He was, at this particular time, based in Nigeria. His employment was deemed high-risk and he was turned away because Nigeria is currently viewed as dangerous by lenders. Lenders’ rules are rules.
Another guy came to us who was based in London, earning British pounds. He had no trouble securing a loan to buy property in Perth.
If you’re working in a major city such as London, New York or Singapore (where thousands of us are), your earning capacity is likely to be good, you’ll be paid in a currency recognised as stable, and you shouldn’t have too many issues gaining approval.
If you work for an international company and earn money in several currencies, different exchange rates will apply to each currency and a currency that trades poorly against the Australian dollar may lower your borrowing potential.
As a rule of thumb, you will have a better chance of getting approval for a home loan if you receive your income in US Dollars, British Pounds Sterling, Euro, Singapore Dollars, Canadian Dollars, Hong Kong Dollars, Japanese Yen, Swiss Francs or New Zealand Dollars.
Of course, like local homebuyers, you’ll need to have saved a deposit of between 5% and 20%, (at least) of the property’s value and show you have a clear credit history. You’ll also need to cover stamp duty and other government costs, which vary from state to state.
It’s also important to keep in mind that some lenders will refuse you a loan outright if you submit a joint home loan application with a foreign citizen. This is because some lenders will consider both of you to be foreign investors and being classed as a foreign investor means you may encounter government restrictions – particularly since the ATO’s crackdown on foreign investment last year.
If all of these factors weigh up, you should have no trouble applying for a home loan as an expat.
Key points to consider before buying Australian property while living abroad:
- You must have a stable income
- You must work in a country on the lender’s ‘approved’ list
- You’ll need an LVR of between 80% and 95% or lower, depending on which currency you are being paid in
- You’ll need a clear credit history
The information above is general in nature, and you should always seek professional advice when making financial decisions.