If you’re an overseas investor (or an expat) looking to buy property in Australia, you need to be aware of the strict lending criteria. The “Big Four” Australian banks (ANZ, Commonwealth, NAB and Westpac) no longer lend to non-residents.
This is because the Australian Prudential Regulation Authority (APRA) wants to limit speculation in the investment property market and prevent possible fraud and money laundering.
However, other financial institutions like HSBC, Citibank, non-bank lenders and private lenders in Australia do offer investment property loans to foreign nationals and expats, although lending terms are stricter now compared to the 2013-2015 period:
- Lower maximum loan-to-value (LVR) ratios.
- Higher interest rates.
- Currency of income restrictions.
- Country of residency restrictions.
- Higher setup/establishment fees.
- Property type restrictions.
Finance is available to approved applicants for both residential (units/apartments, existing homes, land and construction) and commercial properties.
What is a loan-to-value ratio (LVR)
An LVR is the amount of the loan you need expressed as a percentage of the value of the property you want to buy.
In the current lending environment, as a foreign national you can borrow up to 70% of value of the Australian investment property that you want to buy. If you’re an expat or are married to an Australian citizen and based overseas, you may be able to borrow up to 80%.
If you’re a foreign national and you’re looking to refinance an Australian property that you already own, the maximum LVR is 70%.
What is the impact of a lower LVR?
Put simply, when lenders lower their LVR, you need to have a higher deposit saved for your Australian investment property.
So, if you’re a foreign citizen looking to buy an Australian property that’s worth A$750,000, the maximum amount you’ll be able to borrow is A$525,000 (i.e. 70%). The same percentage applies to refinancing too.
Why might loan interest rates be?
APRA has introduced many new restrictions on lenders. These restrictions affect locally-based Australian borrowers, as well as expats and non-residents). It is an industry-first for APRA to step in. Their primary objective is to curb excessive lending. The restrictions can affect loan interest rates in several ways. For example:
- Different rates for owner-occupiers compared to investors
- Higher rates for interest-only repayment types of loans.
Recent statistics show that these measures have had an impact on both the property and lending market in Australia. The growth of property prices has slowed, along with lower auction clearance rates. The multitude of restrictions has also led to higher overheads for lenders. These are typically passed on to mortgage borrowers via higher mortgage rates, despite the current RBA cash rate being at an historically low level.
Are there any country restrictions?
There are some countries whose tax legislation prevents loans being provided to their citizens by Australian . These lenders would have issues verifying the income of borrowers from ‘exotic’ countries where no personal tax is enforced. For example, Brunei does not impose personal income tax on its citizens.
Do I need Australian government approval?
Any property that a foreign national wants to purchase in Australia must be approved by the Foreign Investment Review Board. The application and approval process takes up to 30 days.
During this time, the Board will determine whether your investment property meets legislative requirements. For example, there is a 50% cap on foreign ownership of unit/apartment blocks that are being developed.
Does it matter where I want to buy my Australian investment property?
Lenders generally prefer to provide loans for investment properties located in Australia’s major capital cities (Sydney, Melbourne and Brisbane). These properties tend to have better prospects for generating both rental income and capital growth. With the increased market activities, some lenders have a blacklist of postcodes where LVR is lower or not even lending.
Can I borrow for an Australian investment property if I am self-employed?
Yes, but it might be more difficult.
Under the responsible lending provisions of Australian consumer credit protection legislation, lenders must verify your income. That can be more difficult for self-employed people whose income can fluctuate.
How we can help
At FindAHomeLoan, providing mortgage broking services for investors looking to buy property in countries like Australia is one of our specialities. Whether you’re looking for a new loan or to refinance, we can provide detailed advice and assistance to help you gain approval.
We have a network of partners including lawyers, accountants and bankers to guide you through the international property investment process.
We offer lending solutions from banks and other financial institutions in both Singapore and Australia. The right loan for you depends on your individual circumstances. We’ll take the time to understand your situation and provide you with appropriate advice.
Contact us now to find out how we can help you!