Expat Home Loans Australia Guide | Expat Mortgage Australia
If you’re an Australian citizen living overseas looking to obtain a property loan in Australia as a non-tax resident, i.e. an expat mortgage in Australia, you need to be aware of the changing lending landscape. Over the last four years, credit policies for Australian expats have tightened due to government regulations aimed at controlling foreign investment and reducing money laundering risks in the residential property market.
This has made it more challenging for expats to secure financing for their dream homes. However, with the right guidance and expertise from an experienced expat mortgage lender, it’s possible to navigate the changing policies and obtain a loan that meets your needs.
In this blog post, we’ll explore the changes in the Australian property loan landscape and what they mean for you as an expat. We’ll also provide answers to common questions about obtaining a home loan on a foreign income in Australia and simplify the overseas mortgage process.
The Current Lending Situation for Australian Expat Mortgages
What’s Still Possible for an Expat Mortgage in Australia?
What’s Not Possible for Expat Home Loans Australia?
To summarize, banks are still willing to lend Australian property loans to Australian expats and foreign investors, but it’s the regulators, like the Australian Prudential Regulatory Authority that are imposing harsher restrictions on bank lending that is keeping a lid on foreign investment lending.
Find Out How Expat Mortgages Work
How Do Australian Banks Evaluate Foreign Income for an Expat Home Loan? (Spoiler: It’s Bad, Sort Of)
Typically, lenders will consider only 80% of your gross income, instead of 100% as they would for Australian residents. This reduction is due to foreign currency risk, which means that the lender perceives some currencies as more volatile than others. For example, tier 1 currencies like USD, GBP, and SGD are considered more secure and stable, so lenders would typically reduce your income by 20%. However, currencies like Brazilian Real (BRL) and Turkish lira (TRY) may see reductions by as much as 50%.
In addition to the currency exchange reduction, most lenders will use Australian tax rates to assess your income, regardless of the country you live in. This can be a disadvantage if you live in a low-tax rate country such as Singapore, Hong Kong, or the UAE. However, some lenders will allow you to use your local country’s tax rates, which can have a significant positive impact on your borrowing power.
Overall, lenders assess your expat home loan application from a pessimistic, conservative angle to ensure you can still service the loan even in dire situations. By understanding how foreign income is evaluated for an Australian property loan, expats can better prepare themselves for the application process.
The table below shows how much of your income a typical vs. lenient lender would consider after deductions/taxes.
Typical Lender Lenient Lender
Scenario: Gross $240,000 AUD equivalent income
Choosing a lender that is favorable to your income’s foreign currency will make a significant?difference in how much you can borrow as a non-resident Australian citizen.
Buying With Your Foreign Spouse May Double Your Stamp Duty Costs
If you are an Australian citizen purchasing a property with a foreign national in joint names or with an Australian expat home loan, please be aware that a Foreign buyer's Stamp Duty surcharge will apply to half of the property’s value which can come as a shock.
For example, an Australian citizen buys a $1,250,000 property in NSW with a foreign spouse, jointly owned 50/50. ?
This purchase would equate to a standard Stamp Duty of $54,052 plus a Foreign Buyers Duty of $50,000 for a total of $104,052. It is effectively doubling the Stamp Duty cost.
To avoid this surcharge, one alternative is to purchase the property solely in the name of the Australian spouse, resulting in only the standard Stamp Duty of $54,052 being levied. Australian citizens living overseas are not subject to any penalty or surcharge.
If an Australian expat home loan application does not meet the lender mortgage broker’s servicing requirements without the foreign partner’s income, some lenders may allow the foreign spouse to be a co-borrower without needing to be on the property title.
Click here to calculate your Stamp Duty or learn more about foreign buyers’ duties.
Do You Need to Pay Australian Tax If You Get an Expat Home Loan in Australia?
You only need to pay income tax on Australian-sourced income.
So if your Australian property loan?was because you bought an Investment property and that property is generating rental income then yes, you’ll be required to lodge an Australian tax return every year from that point onwards.
But fret not! The?Australian Tax Office (ATO)?won’t be coming after your foreign?salary income, foreign investments or any offshore investments as a non-tax resident of Australia. (Except if you have a HECS/HELP debt, then you will need to report your foreign income to calculate the repayment of HECS/HELP – your foreign income won’t be taxed)
Other taxes that may be applicable are:
If you are unsure about your tax residency status, it’s recommended to seek advice. It’s worth noting that Australian expats can benefit from negative gearing, where 100% of the investment loan interest rate, building depreciation, property management costs, and more can be tax-deductible.
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To learn more about maximizing your investment from a tax perspective, use our Investment Property Value Calculator.
Case Study:
Aussie Expat Couple Matthew & Kylie Living in Hong Kong (High Variable Income) on Getting an Expat Home Loan in Australia
Background:
Matthew works in Finance in a Senior position. The majority of his income comes in the form of Annual bonuses, education allowances for the kids, and housing allowances, which pay for their high rent expenses. Kylie is at home managing the kids.
Goal:
Wants to buy Investment property for $2-3M (to build up tax credits while abroad with an expectation of capital growth) that will one day be their Owner-occupier home when repatriating back to Oz in a few years. Require 70-80% LVR, low rate with an Offset account, and flexibility to pay the Australian expat home loan?off as desired.
Problem:
The lenders they approached declined their Australian property loan?application due to failed servicing (stress test). The lender would not consider Matthew’s substantial bonus income which accounts for 40% of his total income. Furthermore, the lender reduced his housing allowance to 64% and applied Australian tax rates to his income despite the Hong Kong tax rate capped at 15%.
Note: The above is the norm rather than the exception.
Solution:
Odin Mortgage?provided Matthew with a personalized assessment and multiple lending options before any submission of documents for a home loan?with foreign income?for Australia. His high variable income was included in the evaluation, as well as the use of local Hong Kong tax rates resulting in borrowing capacity exceeding what was required. Structured a flexible split rate Australian expat home loan?with an offset account and the ability to switch to an Owner-occupier loan if plans to return to Australia came earlier. ?
On paper, this may seem like a strong application, but to the majority of banks, this is a declined Australian property loan?application. The result of which is 2-4 weeks wasted in the home buying process as you waited idly for the bank to take its time and tell you ‘Sorry, no, this one’s not for us’.
Your Australian Expat Home Loan Approval Starts With the Right Advice
In conclusion, securing an Australian Expat Home Loan can be a challenging process, especially during volatile times and tightened lending policies. However, with the right advice and guidance, it is still possible to achieve your property investment goals in Australia, even with foreign income.
Expat Mortgage Australia FAQs
Can I get an Australian Expat Mortgage if I’m not in Australia?
Yes, you can. While there are some challenges in the process, we at Odin Mortgage can provide you with a seamless experience as if you were in Australia.
What is the maximum LVR for Expat Mortgage Australia?
You can borrow up to 95% including Lender’s Mortgage Insurance (LMI), or up to 80% without LMI. Currently, most banks are lending between 60-80% LVR (loan-to-value ratio) of the purchase price or valuation (whichever is lower).
How much can I borrow for an Expat Mortgage in Australia?
The amount you can borrow will vary based on your individual circumstances. Check out our How Much Can You Borrow article for more details.
Can I apply for a property loan in Australia if I earn foreign currency?
Yes, you can. As long as you can prove your income through pay slips, formal bank statements, and employment contracts, your foreign currency will be accepted.
Can self-employed individuals get expat home loans in Australia?
Yes, they can. However, additional requirements may apply, and not all lenders will accept self-employed applicants. Visit our How to Get a Self-Employed Home Loan in Australia page for more information.
Will the banks in Australia perform a credit check on me?
Yes, they will. But they will only check your credit score in Australia, not in your country of residence. In some cases, they may ask for a credit report from your country of residence.
Do I need a Power of Attorney (POA) to apply for an expat home loan in Australia?
In most cases, you don’t need a POA (power of attorney). However, in some situations, a POA may be necessary. We can advise you if this is the case.
I'm married to a foreign national. Can we get an Australian expat home loan?
It depends on who produces the majority of the income. If the Australian citizen is the primary income earner, it won’t be an issue. However, if the foreign national is the one working, your options may be limited. We can help you navigate this situation.