This article will explore how you can apply for an Australian mortgage whilst overseas. The COVID pandemic has severely impacted many Australian expats living overseas, since the spread of the virus in January 2020.
The impact for many Australian expats, has resulted in job loss, reduction or loss of business income and a reduced in income from their employment (from a reduction in hours, taking a pay cut to bonus income being postponed).
Our conversations with Australian expats over the past 12 months, has had a similar theme of talking about a ‘come home’ factor.
Many Australians had planned to return to Australia in the future, but watching how the Australian government has handled the pandemic. Has prompted them to think about planning for a return home earlier than initially planned.
Getting a home loan using foreign income as an Australian expat
Australian expats who earn foreign income will be subject to Australian expat lending policy. For example, if you earn GBP or USD, you are considered to be earning a gold standard currency. From a lending perspective, banks view this type of currency as reliable, safe and are more open to lending.
Australian expats that have been outside of the country for some time. It is important to ensure you have a credit score. Australia has implemented a relatively new scoring system and may impact the lender’s credit scoring decision.
Employee income is preferable for Australian lenders. Generally, the process is lenders will take your base foreign wage, convert to AUD and take 80-100% of the wage for servicing.
Aside from base wage, some lenders will accept allowances, commissions and bonus payments paid in foreign currency and then convert to AUD. Lenders would like to see a copy of your employment contract to verify the base wage and other benefits paid.
Borrowers under an ‘umbrella company’ arrangement, is also acceptable. Lenders will like to see a 12-month contract, so show the continuality of income. As well as recent payslips and bank statements, to show the tax has been withheld and the pay income is consistent.
Lenders will generally take 80%-100% of the converted foreign income to AUD amount for servicing.
Self Employed Income
Self-employed income is accepted, though many lenders on our panel will deem this type of income as unacceptable. Lenders that will accept this type of income, they will want to verify against the last 2 years financial statements, tax returns and an accountants letter.
This type of income would be more suited to established businesses and not startups, as it will need to show a taxable profit.
The lenders will take the gross income and again convert from foreign currency to AUD and take 80-100% of the income for loan servicing. Due to COVID, lenders will also wants to understand and impacts on trading, by requesting recent tax or bank statements.
Purchasing an Australian investment property
Lenders will allow you to borrow 70% – 90% of the property value (depending on the lender). At the time of the application, the lender will want to ensure you have sufficient funds to close on the property and pay for the settlement costs.
If you have an existing property in Australia, lenders will allow you to access the equity to use towards the deposit of the new purchase, to cash funds required to purchase the new investment property.
For servicing, the lender will also apply a nominal rental figure on the proposed investment property and this will also be confirmed with the bank valuation or the real estate agents appraisal letter.
Purchasing an Australian property for residence
We have seen many clients now with the flexibility to work remotely in Australia and continue employment with an international employer.
With this transfer, it has allowed the Australian expat to purchase a property as their main resident to occupy. Lenders will need to see a transfer letter or new contract to confirm the new working arrangements. Similar to a foreign income expat loan, the lenders will still need to verify your foreign income wage and convert to AUD for servicing purposes.
Refinancing investment expat loan
Perhaps it is time to review an existing home loan in place, change the loan features (adding an offset account) or change the type of loan from a variable loan to a fixed loan.
Provided servicing is evident and there is sufficient equity in the property. This can be achieved, lenders will still allow this with COVID – but they will want to understand how you have been financially impacted by the pandemic.
Things to consider with servicing
Aside from your employment income and the rental income from your proposed Australian property. It is important to review your living expenses (how many dependents, your monthly expenses), your overseas rental income and repayments of existing liabilities (including Australian and overseas mortgages, credit card limits, loans, and monthly living expenses).
With COVID, many lenders are placing restrictions on the reliance of bonus income for servicing purposes. If the majority of your employment income is tied to bonus income, additional documents may be required to verify for loan servicing.
My partner is a non-resident
If you need your partner on the loan servicing purposes, some lenders will treat your partner under expat policy (if you are in a defacto/married relationship) but a lot of lenders will limit their expat policy to Australian Citizens.
It is important to understand the FIRB requirements and local state stamp duty laws when purchasing with a non-resident. We recommend you get legal advice on the implications and additional taxes.
If you were to purchase with your non-resident spouse, whilst you are in Australia – this can also change the lending and ownership rules.
Consideration needs to be given with FX fluctuations when you are earning foreign income and require AUD to repay the Australian mortgage.
This will require the currency to be moved from overseas to an Australia bank account to meet your financial commitments. The AUD over the past 12 months has strengthened against major currencies and this risk will need to be planned for and considered as part of the transaction.
It is important to discuss the different types of mortgage features, that can assist with your FX currency risk.
The RBA recently, cut the central cash rate for Australia, with the Governor highlighting the need to weaken the AUD currency. You can read about how that will impact your mortgage and the cost of borrowing.
COVID and the impacts on your Australian expat mortgage
COVID has had a huge impact on the international business and employment market. Australian lenders are asking additional questions and making inquiries to see how the borrowers have been impacted.
Borrowers, who are on a wage, the Australian lenders are interested to know if there have been any changes to your employment, loss of working hours, loss of bonus income or loss of a job?
Self-employed borrowers, the Australian lenders will need to understand how COVID has impacted their trading. Has business stopped, has the business been able to recover trading to pre-COVID levels and how may the industry be impacted in the future.
Jeremy Harper is the director of hfinance. hfinance is a mortgage brokering business, to speak with a Sydney Mortgage Broker, Gold Coast Mortgage Broker. Contact by calling us on 1300 928 227 or email [email protected].