Should Australians be taking their home loans offshore?

Should Australians be taking their home loans offshore?

We often hear about foreign nationals coming to Australia and buying up real estate. But what about those Australians who buy properties in other countries

This is particularly tempting due to the continuing strength of the Australian dollar, which remains high despite recent drops. Back in 2010, the International Property Investment Network’s Peter Mindenhall told Karma Resorts that “with the Aussie dollar as strong as it is, the traditionally ‘well developed’ and ‘stronger economies’ like the US and the UK are now very attractive indeed.”

However, buying offshore isn’t without its risks. Fairfax Media reported on November 27 on the predicament faced by Australian property buyers in Phuket’s luxury Chom Tawan district. A Thai court has ordered the sale of homes owned by more than 40 buyers in the residential development, unless Napawan Asia Limited, the project developer, pays back millions of dollars to the Industrial and Commercial Bank of China. 

The risks of buying offshore

This case illustrates some of the risks of becoming an offshore real estate buyer, despite the fact that it’s now easier than ever. Thanks to the internet, it’s not only possible to easily peruse foreign real estate listings in the hunt for that dream offshore property for investment or sea change, it’s also simpler to carry out the necessary communications with vendors, lawyers and builders — as well as any research around the local real estate market. 

At the same time, dealing with unfamiliar contacts can leave you vulnerable, as the Australian buyers in Phuket learned. What seems a good deal on paper can leave buyers in danger of losing it all if dealing with an unreliable or even unscrupulous developer or real estate agent. 

There are other potential risks, too. Depending on the situation, you could be dealing with a product you’re not seeing in the flesh, leaving you unable to check whether there are any repairs or maintenance issues with the property. If the property is being built, you’re also unable to regularly review progress. 

Along with this, there’s the issues around navigating a confusing, foreign tax and legal system, factoring exchange rates into your cost analysis and the troubles with trying to be a foreign landlord. Managing a property from a different state can be hard enough, let alone from a different country. 

Of course, any purchase is about balancing the potential risks and benefits. The financial advantages of buying offshore might offset these points.

How affordable is it overseas?

At first glance, it seems buyers can benefit greatly from applying their home loan calculator to foreign housing. The Organisation for Economic Co-operation and Development has figures for the price-to-income ratio of housing in various countries, a typical measure of the affordability of housing for the average buyer. The higher the ratio, the greater the value of housing in a country.

As of the time of writing Australia had the fourth highest ratio of house prices to income, with a value of 29.4. New Zealand and Canada were marginally higher, with ratios of 31.9 and 30.5, respectively, while Belgium streaks ahead with 46.6.

By contrast, take countries at the bottom end of the scale. South Korea has the most favourable ratio, at -39.4, while Japan trails close behind with -38.4. Meanwhile, the United States sits at a value of -9.8, and Greece with a ratio of 2.8. 

Some of these places are also more advantageous in terms of the cost of lending. While the World Bank puts Australia’s real interest rate at 6.5 percent, Japan (1.9 percent), South Korea (3.9 percent), the US (1.7 percent) all report lower values. This is even the case in countries like Malaysia (4.7 percent) and Thailand (4.1 percent). 

Of course, the price of borrowing for a house isn’t the be-all and end-all. The US and, especially, Greece are undergoing economic instability which makes them less reliable areas to buy a property you’ll be paying off for many years. It’s also important to factor in the cost of living itself, particularly if you’re planning on moving permanently. 

The offshore buyers checklist

If you do decide you want to buy overseas, you should consider a number of factors:

  • Get legal and tax advice for your country of choice before making any decision
  • Do research on the country’s property market, as well as the local area you’re investing in
  • Carry out a thorough background check on the reputability of anyone you’re dealing with, such as developers and real estate agents
  • Keep up with movements in the exchange rate

While the process is certainly tricky, if you’re determined to buy offshore, these points will help you avoid some of the bigger pitfalls.

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Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

Does Westpac offer loan maternity leave options?

Having a baby or planning for one can bring about a lot of changes in your life, including to the hip pocket. You may need to re-do the budget to make sure you can afford the upcoming expenses, especially if one partner is taking parental leave to look after the little one. 

Some families find it difficult to meet their home loan repayment obligations during this period. Flexible options, such as the Westpac home loan maternity leave offerings, have been put together to help reduce the pressure of repayments during parental leave.

Westpac offers a couple of choices, depending on your circumstances:

  • Parental Leave Mortgage Repayment Reduction: You could get your home loan repayments reduced for up to 12 months for home loans with a term longer than a year. 
  • Mortgage Repayment Pause: You can pause repayments while on maternity leave, provided you’ve made additional repayments earlier.

When applying for a home loan while pregnant, Westpac has said it will recognise paid maternity leave and back-to-work salaries. All you need is a letter from your employer verifying your return-to-work date and the nature of your employment. Your partner’s income, government entitlements, savings and investments will may help your application.

What's the difference between Real Time Ratings and comparison rates?

A comparison rate calculates the cost of a $150,000 loan over 25 years. While a comparison rate is a good industry benchmark, it doesn’t consider your specific lending requirements.

Real Time RatingsTM factors in essential information like your loan size, your loan-to-value ratio (LVR), whether you want an offset account and whether you are an investor or an owner-occupier.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.