Living and working overseas for a year or more is a rite of passage for many Australians, and even if your career or personal life has taken you overseas for a time, there's a fair chance that you still call Australia home.
But what happens if you're an Australian citizen living and working abroad, and you want to take out a home loan to buy property in Australia? Do lenders offer home loans to Aussie expats and will you be able to get a competitive rate?
The good news is that a wide variety of banks and non-bank lenders offer Australian expat home loans. However, there are certain terms and conditions attached to these mortgages that you should be aware of before you apply for a loan.
`An Australian citizen living and working overseas can certainly borrow for a purchase here,` says Stacks Loan. `The current publicity around 'overseas investors' really relates to foreign nationals looking to buy here, ie 'non-resident' citizens of another country.`
So while there's a widespread belief that expats will need to obtain approval from the Foreign Investment Review Board before they can buy property in Australia, this is simply not true.
The interest rates and fees for expat home loans are generally the same as those any Australian living here could access, but some lenders do charge higher interest rates. Specific terms and conditions also apply to these types of loans, so it's important to compare your options before submitting an application.
The amount you can borrow with an expat home loan really depends on the lender you select. Factors such as fluctuating exchange rates, foreign tax rates, any foreign debts you have and the impact of negative gearing all influence how much a lender is willing to let you borrow, with loan to valuation ratios (LVRs) ranging from around 60% to 80% available.
Talking to a spread of lenders shows that an Australian citizens living and working overseas could borrow up to a possible maximum of 80% of the valuation/purchase price (the lesser of the two), with some policy issues to be addressed of course, Haas says.
But while you can access a high LVR with some lenders, Jordan Papadopoulos from Pendo Finance explains that the LVR available for Aussie expats is generally lower than the amount an Australian citizen living and working in Australian could borrow.
For example, if you have two clients looking to purchase the same three-bedroom home in Melbourne:
Expat: Maximum LVR could be 60% with Lender ABC.
Citizen: Maximum LVR could be 80% with Lender ABC.
As a result, expats will be required to hold a much higher deposit and/or use equity from other properties owned within Australia, Papadopoulos says.
One of the main issues to consider when you apply for an expat home loan is that you will be earning income in a foreign currency. A lender will need to assess your income and earnings capacity before approving your loan application, but each lender has its own approach to foreign income. Most Australian lenders will only accept a certain percentage of your foreign income, which allows a lender to protect itself against factors such as fluctuating exchange rates.
PAYG applicants will need to be paid generally in one of the major currencies, for example,GBP, Euro or USD, Haas says. The lender here will take 80% of that income - some take 80% of net, some, 80% of gross - and use that for servicing the loan with generally no negative gearing benefits allowed for.
Some of the commonly accepted currencies for foreign income when applying for an Australian expat home loan include:
There are several other worldwide currencies that may be accepted by your lender, but restrictions such as lower LVRs may apply. Some lenders will also only accept loan applications from expats residing in a country where there is an Australian consulate, so an experienced mortgage broker will be able to talk you through the ins and outs of expat lending criteria.